Required information

Skip to question

[The following information applies to the questions displayed below.]

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 $78,000 per month and the company is selling 3,500 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 $4 per unit and increase unit sales by 20%.

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