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Demonstrate how much will net operating income increase

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Reference no: EM132574943

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.

Question 1: 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%.

Question 2: Should the higher-quality components be used?

Reference no: EM132574943

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