Question
Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO6-4] [The following information applies to the questions displayed below.] Data for Hermann
Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO6-4] [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below:
Per Unit | Percent of Sales | ||||||
Selling price | $ | 125 | 100 | % | |||
Variable expenses | 80 | 64 | |||||
Contribution margin | $ | 45 | 36 | % | |||
Fixed expenses are $85,000 per month and the company is selling 2,700 units per month.
Exercise 6-5 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 $5 per unit and increase unit sales by 20%.
2-b. Should the higher-quality components be used?
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