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 $ 135 100 %

Variable expenses 81 60

Contribution margin $ 54 40 %

Fixed expenses are $87,000 per month and the company is selling 2,900 units per month.

Exercise 6-5 Part 2

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 $5 per unit and increase unit sales by 20%.

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