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.
-
The marketing manager argues that a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000.
Should the advertising budget be increased? -
Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $2 per unit. The marketing manager believes that the higher-quality product would increase sales by 10% per month.
Should the higher-quality components be used?