Question

Check Required information (The following information applies to the questions displayed below.) Data for Hermann Corporation are shown below: Per Unit Percent of Sales 1000 70 Selling price Variable expenses Contribution margin $ 110 $ 33 306 Fixed expenses are $82,000 per month and the company is selling 3,500 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 20%. 2-b. Should the higher-quality components be used? Complete this question by entering your answers in the tabs below. Req ZA 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 20% Net operating income increases by Roq 28 >

Answer 1

2a) Present net income = Revenue-Expense = (3500*33)-82000 = 33500

Proposed net income = Incremental revenue-Incremental cost = (3500*1.2*28)-82000 = 35600

2b) Net operating income increase by (35600-33500) = 2100