Question

! Required information [The following information applies to the questions displayed below.) Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 130 78 Percent of Sales 100% 60 $ 52 40% Fixed expenses are $86,000 per month and the company is selling 2,800 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 $6 per unit and increase unit sales by 15%. 2-b. Should the higher-quality components be used? Complete this question by entering your answers in the tabs below.

Pls help, question 2a!! Managerial accounting.

Answer 1

2-a)
	Current	Proposed
Unit Sales	2,800 units	3,220 ( 2,800 + 15% )
Sales	$ 364,000 ( 2,800 x $ 130 )	$ 418,600 ( 3,220 x $ 130 )
Less: Variable expenses	($ 218,400) ( 2,800 x $ 78 )	($ 270,480) ( 3,220 x ($ 78 + 6 ) )
Contribution margin	$ 145,600	$ 148,120
Less: Fixed expenses	($ 86,000)	($ 86,000)
Net operating income	$ 59,600	$ 62,120
Change in Net Opearting Income        = $ 62,120 (-) $ 59,600	$ 2,520 (Increase )
2-b)
Yes, higher quality components Should be used