Reference no: EM132582927

Data for Hermann Corporation are shown below:

                              Per Unit                 Percentage of Sales

Sales price                    $90                        100

Less: Variable expenses      63                           70

Contribution margin             $27                           30

Fixed expenses are $40,000 per month, and the company is selling 2,000 units per month.

Question 1: The marketing manager argues that a $4,000 increase in the monthly advertising budget would increase monthly sales by $9,000. Should the advertising budget be increased?

Question 2: Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $2.00 per unit. The marketing manager believes the higher-quality product would increase sales by 10% per month. Should the higher-quality components be used?