Ask Question
25 August, 15:13

Data for Hermann Corporation are shown below:

Per unit Percentage of sale

Selling price $75 100%

expenses 51 68

contribution margin 24% 32%

Fixed expenses are $75,000 per month and the company is selling 4,000 units per month.

Required:

a. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $4 per unit and increase unit sales by 25%.

b. Should the higher-quality components be used?

+3
Answers (1)
  1. 25 August, 15:20
    0
    Instructions are below.

    Explanation:

    Giving the following information:

    Selling price = $75

    expenses = $51

    contribution margin = $24

    Fixed expenses are $75,000 per month and the company is selling 4,000 units per month.

    Higher quality:

    Variable cost = $55

    Increase in sales = 4,000*1.25 = 5,000

    First, we need to determine the effect on the income:

    Effect on income = 1,000 * (75 - 55) - 4,000*4

    Effect on income = $4,000 increase

    The higher quality component should be used because of income increase.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Data for Hermann Corporation are shown below: Per unit Percentage of sale Selling price $75 100% expenses 51 68 contribution margin 24% 32% ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers