Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 50 100% Variable expenses 28 56 Contribution margin $ 22 44% Fixed expenses are $70,000 per month and the company is selling 4,000 units per month. Exercise 5-7 (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?

Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 50 100% Variable expenses 28 56 Contribution margin $ 22 44% Fixed expenses are $70,000 per month and the company is selling 4,000 units per month. Exercise 5-7 (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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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	Per Unit	Percent of Sales
Selling price	$ 50	100%
Variable expenses	28	56
Contribution margin	$ 22	44%

Exercise 5-7 (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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