Required information Exercise 5-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4] [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 60 39 $ 21 Exercise 5-5 (Algo) Part 2 Percent of Sales 100% 65 35% Fixed expenses are $72,000 per month and the company is selling 4,200 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 25%. 2-b. Should the higher-quality components be used?
Required information Exercise 5-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4] [The following information applies to the questions displayed below.] Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 60 39 $ 21 Exercise 5-5 (Algo) Part 2 Percent of Sales 100% 65 35% Fixed expenses are $72,000 per month and the company is selling 4,200 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 25%. 2-b. Should the higher-quality components be used?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![!
Required information
Exercise 5-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price,
and Volume [LO5-4]
[The following information applies to the questions displayed below.]
Data for Hermann Corporation are shown below:
Selling price
Variable expenses
Contribution margin
Per Unit
$ 60
39
$ 21
Exercise 5-5 (Algo) Part 2
Percent of
Sales
100%
65
35%
Fixed expenses are $72,000 per month and the company is selling 4,200 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 25%.
2-b. Should the higher-quality components be used?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa9f52f81-2cba-4632-82f2-a5c07104b5f5%2F435982d5-fc95-405d-ab07-32f7379b1faf%2Fnpbox5_processed.png&w=3840&q=75)
Transcribed Image Text:!
Required information
Exercise 5-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price,
and Volume [LO5-4]
[The following information applies to the questions displayed below.]
Data for Hermann Corporation are shown below:
Selling price
Variable expenses
Contribution margin
Per Unit
$ 60
39
$ 21
Exercise 5-5 (Algo) Part 2
Percent of
Sales
100%
65
35%
Fixed expenses are $72,000 per month and the company is selling 4,200 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 25%.
2-b. Should the higher-quality components be used?
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