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 25%. 2-b. Should the higher-quality components be used?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Data for Hermann Corporation are shown below:

 

  Per Unit Percent of Sales
Selling price $ 55 100%
Variable expenses 33 60
Contribution margin $ 22 40%

 

Fixed expenses are $71,000 per month and the company is selling 4,100 units per month.

 

Exercise 6-5 (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-quality components that increase the variable expense by $4 per unit and increase unit sales by 25%.

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

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