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Home/ Questions/Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $...
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Asked: April 13, 20222022-04-13T06:27:30+00:00 2022-04-13T06:27:30+00:00In: Accounting

Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $…

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Data for Hermann Corporation are shown below:
Per Unit Percent of Sales
Selling price $ 80 100%
Variable expenses 52 65
Contribution margin $ 28 35%
Fixed expenses are $76,000 per month and the company is selling 4.600 units per month.
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 25%.
2-b. Should the higher-quality components be used?
Complete this question by entering your answers in the tabs below.
Req 2A Req 2B
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 25%.
Net operating income               by                          .
Should the higher-quality components be used?
Yes
No
♦ Relevant knowledge

The income statement reveals all the revenue and expenses of a firm over an extended period.On a contribution margin’s earnings report, the variable expense as well as fixed expenses are described separately.Variable expenses are first listed and a specific measurement of income known as the contribution margin can be calculated using the difference between variable expenses and sales.

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    Ethan Gelbero
    2022-04-13T06:27:33+00:00Added an answer on April 13, 2022 at 6:27 am

    Current net operating income

    = Total contribution margin – Fixed cost

    = (4,600×28) – 76,000 = 52,800

    Projected net operating income

    = (4,600+25%)×(28-5) – 76,000

    = 56,250

    Increase = 56.250 – 52.800

    Net operating income increases by $3450

    Yes

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