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Accounting
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[The following information applies to the questions displayed below.]
Data for Hermann Corporation are shown below:
Per Unit
Percent of Sales
Selling price
$
65
100
%
Variable expenses
39
60
Contribution margin
$
26
40
%
Fixed expenses are $73,000 per month and the company is selling 4,300 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?
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
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