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Data for Hermann Corporation are shown below:
Per Unit
Percent of Sales
Selling price
$ 105
100%
Variable expenses
63
60
Contribution margin
$ 42
40%
Fixed expenses are $81,000 per month and the company is selling 3,800 units per month.
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 $4 per unit and increase unit sales by 20%.
net operating income by
b. Should the higher-quality components be used?
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