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.   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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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.

 

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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