Data for Hermann Corporation are shown below:

Per Unit Percent of Sales

Selling price $ 100 100%

Variable expenses 61 61

Contribution margin $ 39 39%

Fixed expenses are $80,000 per month and the company is selling 3,700 units per month.

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 $3 per unit and increase unit sales by 15%.

2-b. Should the higher-quality components be used?

Question

Data for Hermann Corporation are shown below:

	Per Unit	Percent of Sales
Selling price	$ 100	100%
Variable expenses	61	61
Contribution margin	$ 39	39%

Fixed expenses are $80,000 per month and the company is selling 3,700 units per month.

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 $3 per unit and increase unit sales by 15%.

2-b. Should the higher-quality components be used?

Accepted Answer

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Question

Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 100 100% Variable expenses 61 61 Contribution margin $ 39

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