Provide a short narrative of your analysis of the problem. Explain what theories/ concepts apply, how, and why. Then present the solution/computation. Write a short narrative explaining the meaning of the final answer - its implication to the firm. Write a short recommendation/conclusion based on the analysis and solutions. You solved a current problem only. How can you provide for the future? What about contingencies that may arise? What proactive measures can you take? EXERCISE 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume LO5-4Data for Hermann Corporation are shown below:Per Unit Percent of Sales$90100%6370Contribution margin $27Selling priceVariable expensesFixed expenses are $30,000 per month and the company is selling 2,000 units per month.30%Page 221Required:1. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total monthlysales 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 andincrease unit sales by 10%. E5-51a.1b.2a.2b.SalesVariable ExpenseContribution MarginFixed ExpensesNet Operating IncomeNoSalesVariable ExpenseContributed MarginCurrent Sales180,000.00126,000.0054,000.0030,000.0024,000.00Fixed ExpenseNet Operating ExpenseNet Operating Income Before Changes to be MadIncrease in Net Operating IncomeYes198,000.00143,000.0055,000.0030,000.0025,000.0024,000.00$1,000.00Sales with Additional Advertising Budget189,000.00132,300.0056,700.00Difference9,000.006,300.002,700.0035,000.005,000.0021,700.00 -$2,300.00

Introduction:- CVP analysis is used to identify the changes in costs and volume affect a company's…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Provide a short narrative of your analysis of the problem. Explain what theories/ concepts apply, how, and why. Then present the solution/computation. Write a short narrative explaining the meaning of the final answer - its implication to the firm. Write a short recommendation/conclusion based on the analysis and solutions. You solved a current problem only. How can you provide for the future? What about contingencies that may arise? What proactive measures can you take?

EXERCISE 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume LO5-4
Data for Hermann Corporation are shown below:
Per Unit Percent of Sales
$90
100%
63
70
Contribution margin $27
Selling price
Variable expenses
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
30%
Page 221
Required:
1. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total 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%.

E5-5
1a.
1b.
2a.
2b.
Sales
Variable Expense
Contribution Margin
Fixed Expenses
Net Operating Income
No
Sales
Variable Expense
Contributed Margin
Current Sales
180,000.00
126,000.00
54,000.00
30,000.00
24,000.00
Fixed Expense
Net Operating Expense
Net Operating Income Before Changes to be Mad
Increase in Net Operating Income
Yes
198,000.00
143,000.00
55,000.00
30,000.00
25,000.00
24,000.00
$1,000.00
Sales with Additional Advertising Budget
189,000.00
132,300.00
56,700.00
Difference
9,000.00
6,300.00
2,700.00
35,000.00
5,000.00
21,700.00 -$2,300.00

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