Data for Hermann Corporation are shown below: Fixed expenses are $79,000 per mon

Question

Data for Hermann Corporation are shown below:

Fixed expenses are $79,000 per month and the company is selling 3,600 units per month.

Garrison 16e Rechecks 2017-05-02

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 $3 per unit and increase unit sales by 10%.

2-b. Should the higher-quality components be used?

Per Unit Percent of Sales Selling price $ 95 100 % Variable expenses 57 60 Contribution margin $ 38 40 %

Explanation / Answer

1.Hence increase in Net operating income=(59600-57800)=$1800

2.Hence advertising budget should be increased.

Current Proposed Unit sales 3600 (3600*1.1)=3960 Sales (95*3600)=$342000 (95*3960)=$376200 Variable expenses (57*3600)=$205200 (57+3)*3960=$237600 Contribution margin $136800 $138600 Fixed expenses $79000 $79000 Net operating income $57800 $59600

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.