Question

Help Save & Exit S Udla TUI nei Check my w Lupuluol die STUWII Verw. Per Unit Percent of Sales 100% $ 90 Part 2 of 2 Selling price Variable expenses Contribution margin 63 30% Fixed expenses are $30,000 per month and the company is selling 2,000 units per month points Skipped 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 $2 per unit and increase unit sales by 10% 2-b. Should the higher-quality components be used? eBook Hint Complete this question by entering your answers in the tabs below. Print References Req 2A Reg 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 $2 per unit and increase unit sales by 10% Net operating income Graw Mill < Piex 4 of 12 Next >

Answer 1

Original Data:

Selling Price per unit = $90.00
Variable Cost per unit = $63.00
Fixed Expenses = $30,000
Units Sold = 2,000

Use of High-Quality Component:

Selling Price per unit = $90.00
Fixed Expenses = $30,000

Variable Cost per unit = $63.00 + $2.00
Variable Cost per unit = $65.00

Units Sold = 2,000 + 10% * 2,000
Units Sold = 2,200

Sales Variable expense Contribution margin Fixed expense Net operating income Contribution Income Statement 2,000 Units Sold Total Per Unit 180,000 $ 90.00 $ 126,000 $ 63.00 $ 54,000 $ 27.00 $ 30,000 $ 24,000 $ 2,200 Units Sold Total Per Unit 198,000 $ 90.00 143,000 $ 65.00 55,000 $ 25.00 30,000 25,000

Yes, the higher quality components should be used as net operating income will increase.