Exercise 2-5 (Static) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO2-4]

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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.

Exercise 2-5 (Static) 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 $2 per unit and increase unit sales by 10%.

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