Question: Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 130 100 % Variable expenses 78 60 Contribution margin $

Data for Hermann Corporation are shown below:

	Per Unit		Percent of Sales
Selling price	$	130		100	%
Variable expenses		78		60
Contribution margin	$	52		40	%

Fixed expenses are $86,000 per month and the company is selling 2,800 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 $6 per unit and increase unit sales by 15%.

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

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