Question: Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 90 100 % Variable expenses 63 70 Contribution margin $

Data for Hermann Corporation are shown below:

	Per Unit		Percent of Sales
Selling price	$	90	100	%
Variable expenses		63	70
Contribution margin	$	27	30	%

Fixed expenses are $30,000 per month and the company is selling 2,000 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 $2 per unit and increase unit sales by 10%.

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

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