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Required information Exercise 5-5 (Static) Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4) [The following information applies to the questions displayed below) Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Percent Per Unit of Sales $ 90 100% 63 70 $ 27 304 Fixed expenses are $30,000 per month and the company is selling 2,000 units per month Exercise 5-5 (Static) Part 2 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? Complete this question by entering your answers in the tabs below. < Prev 4 of 10 !!! Next >

Answer 1

2a. $65 New variable Expenses Peronit = ($ 63+ $9) New Sales (accounits +Q000x10')) = 2200 boily $30,000 fired Expenses Computation of new operating income . Particulare Amount (6) Sales revenue Cagoo vnitjx890) $198.000 leser variable Ezp ce acounis x 469) 143,000) Contribution margin $55.000 less: freed Gepenges (6 30,000) $ 95,000 New operating in come existing operating in come $54,000 Contribution margin C 2000 units x$95) ($ 30,000) less: fixed Expenses $24.000 Existing operating income 4.6 24 i) se commended to company go with high quality conjoneut it will increase profit of $ 1000 ($95000-$94060).

Mailio products Selling Price Plu = $15 less: Variable Cost flu = ($ 12 Contribution neargin $3 $4200 fixed Cost $3 $15 X100 20%. Contribution margin Ratio 1. Break Even point in units fined cost Contribution Moigion Plo $42200 1400 unit $.3 2. Break Even Sales in cellars fired Cost Contribulion margin Ratio $4200 $21.000 0:20 3. Bf fixed Cople increased by $600, NOW Break Elen Salis in Unils + dellass.

$4200 + $600 $3 = 1600 units B.E. Sales dollars $4200 + $600 0:20 - $24,000 X Pluaye do like - -, -trappy Chugging