Chapter 5 Homework Help Sa Required Information The folowing information applies

Question

Chapter 5 Homework Help Sa Required Information The folowing information applies to the questions dsplayed below Data for Hermann Corporation are shown below Fixed expenses ace $78,000 per month and the company is selling 3,500 unts per month 2-a Reter to the original data How much will net operating income incresse (decreasel per month if the company uses higher-quality components that increase the variable expense by $4 per unit ond increase unit sales by 20%. 2-b. Should the higher-quality components be used? Complete this question by entering your answers in the tabs below. Prev 40" 10,1 Next> MacBook Air 20 0

Explanation / Answer

Original components:

Sales = 3500 units

Net Operating income = Sales (Selling price – variable expenses) – Fixed expenses

= 3500*27 – 78000 = 16500 $

After higher quality component installed

Variable expenses = 63+4 = 67 $

Sales = 3500*1.20 = 4200 units

Net Operating income = Sales (Selling price – variable expenses) – Fixed expenses

= 4200*23 – 78000 = 18600 $

Yes, the higher quality component should be installed.

It increases Net operating income by 2100 $

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