Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 125 100% Variable expenses 80 64 Contribution margin $ 45 36% Fixed expenses are $85,000 per month and the company is selling 2,700 units per month. Required: 1-a. How much will net operating income increase or decrease per month if the monthly advertising budget increases by $9,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $12,500? 1-b. Should the advertising budget be increased?
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 | $ 125 | 100% |
| Variable expenses | 80 | 64 |
| Contribution margin | $ 45 | 36% |
Fixed expenses are $85,000 per month and the company is selling 2,700 units per month.
Required:
1-a. How much will net operating income increase or decrease per month if the monthly advertising budget increases by $9,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $12,500?
1-b. Should the advertising budget be increased?
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