Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO4]

[The following information applies to the questions displayed below.]

Data for Herron Corporation are shown below:

	Per Unit			Percent of Sales
Selling price	$	60		100%
Variable expenses		42		70%
Contribution margin	$	18		30%

Fixed expenses are $75,800 per month and the company is selling 4,100 units per month.

Exercise 5-5 Part 2

2a.

Management is considering using higher-quality components that would increase the variable cost by $5 per unit. The marketing manager believes that the higher-quality product would increase sales by 15% per month. Calculate the change in total contribution margin. (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Total contribution margin (Click to select)increasesdecreases by

$

2b.

Should the higher-quality components be used?

	Yes
	No