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Exercise 5-5 (Algo) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4]

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Data for Hermann Corporation are shown below:

	Per Unit				Percent of Sales
Selling price	$	115				100	%
Variable expenses		69				60
Contribution margin	$	46				40	%

Fixed expenses are $83,000 per month and the company is selling 2,500 units per month.

Exercise 5-5 (Algo) 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 15%.

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

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