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

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

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.

Exercise 5-5 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 $2 per unit and increase unit sales by 10%.

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