Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO6-4]

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Data for Hermann Corporation are shown below:

	Per Unit				Percent of Sales
Selling price	$	140				100	%
Variable expenses		91				65
Contribution margin	$	49				35	%

Fixed expenses are $88,000 per month and the company is selling 3,000 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 $6 per unit and increase unit sales by 20%.

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