Data for Hermann Corporation are shown below:

	Per Unit	Percent of Sales
Selling price	$ 130	100%
Variable expenses	78	60
Contribution margin	$ 52	40%

Fixed expenses are $86,000 per month and the company is selling 2,800 units per month.

Required:

PART 2

Data for Hermann Corporation are shown below:

	Per Unit	Percent of Sales
Selling price	$ 130	100%
Variable expenses	78	60
Contribution margin	$ 52	40%

Fixed expenses are $86,000 per month and the company is selling 2,800 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 $6 per unit and increase unit sales by 15%.

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

Selling price Variable expenses Contribution margin Per Unit $ 130 78 $ 52 Percent of Sales 100% 60 40% Fixed expenses are $86,000 per month and the company is selling 2,800 units per month. Exercise 5-5 (Algo) Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,100, the monthly sales volume increases by 100 units, and the total monthly sales increase by $13,000? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Req 1B How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,100, the monthly sales volume increases by 100 units, and the total monthly sales increase by $13,000? (Do not round intermediate calculations.) Net operating income by Selling price Variable expenses Contribution margin Per Unit $ 130 78 $ 52 Percent of Sales 100% 60 40% Fixed expenses are $86,000 per month and the company is selling 2,800 units per month. Exercise 5-5 (Algo) Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,100, the monthly sales volume increases by 100 units, and the total monthly sales increase by $13,000? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Should the advertising budget be increased? Yes No Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 130 78 $ 52 Percent of Sales 100% 60 40% Fixed expenses are $86,000 per month and the company is selling 2,800 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-quali components that increase the variable expense by $6 per unit and increase unit sales by 15%. 2-b. Should the higher-quality components be used? Complete this question by entering your answers in the tabs below. Req 2A Req 2B 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 $6 per unit and increase unit sales by 15%. Net operating income by Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 130 78 $ 52 Percent of Sales 100% 60 40% Fixed expenses are $86,000 per month and the company is selling 2,800 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-quali components that increase the variable expense by $6 per unit and increase unit sales by 15%. 2-b. Should the higher-quality components be used? Complete this question by entering your answers in the tabs below. Req 2A Req 2B Should the higher-quality components be used? Yes No