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Determine how much will net operating income increase

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Reference no: EM132537578

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.

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 $5 per unit and increase unit sales by 15%.

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

Reference no: EM132537578

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