Data for Hermann Corporation are shown below: Per Unit Percent of SalesSelling price $ 90 100%Variable expenses 63 70Contribution margin $ 27 30% Fixed expenses are $30,000 per month and the company is selling 2,000 units per month. Required:1. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000 and monthly sales increase by $9,000?2. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $2 per unit and increase unit sales by 10%.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Data for Hermann Corporation are shown below:
Per Unit Percent of Sales
Selling price $ 90 100%
Variable expenses 63 70
Contribution margin $ 27 30%
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
Required:
1. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000 and monthly sales increase by $9,000?
2. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $2 per unit and increase unit sales by 10%.
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