Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 105 100% Variable expenses 63 60 Contribution margin $ 42 40% Fixed expenses are $81,000 per month and the company is selling 3,800 units per month. Exercise 5-5 (Algo) Part 2 2-a. 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 $4 per unit and increase unit sales by 20%. 2-b. Should the higher-quality components be used?
Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 105 100% Variable expenses 63 60 Contribution margin $ 42 40% Fixed expenses are $81,000 per month and the company is selling 3,800 units per month. Exercise 5-5 (Algo) Part 2 2-a. 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 $4 per unit and increase unit sales by 20%. 2-b. Should the higher-quality components be used?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 5-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4]
[The following information applies to the questions displayed below.]
Data for Hermann Corporation are shown below:
| Per Unit | Percent of Sales | |
|---|---|---|
| Selling price | $ 105 | 100% |
| Variable expenses | 63 | 60 |
| Contribution margin | $ 42 | 40% |
Fixed expenses are $81,000 per month and the company is selling 3,800 units per month.
Exercise 5-5 (Algo) Part 2
2-a. 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 $4 per unit and increase unit sales by 20%.
2-b. Should the higher-quality components be used?
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