[The following information applies to the questions displayed below.] Fixed expe

Question

[The following information applies to the questions displayed below.]

Fixed expenses are $82,000 per month and the company is selling 3,500 units per month.

considering using higher-quality components that would increase the variable cost by $5 per unit. The marketing manager believes that the higher-quality product would increase sales by 20% per month. Calculate the change in total contribution margin.

[The following information applies to the questions displayed below.]

Explanation / Answer

Herron Corporation Revised Scenario Sales Quantity =3500 X 120% = 4,200 units Sales Rate per unit = $ 110 per unit Variable Costs per unit = $ 77 per unit + $ 5 = $ 82 per unit Thus, the contribution margin will be $ 28 per unit (All amounts in $) Present Revised Change Scenario Scenario Sales 385000 462000 77000 Variable Costs 269500 344400 74900 Contribution Margin 115500 117600 2100 Contribution Margin Ratio 30% 25% 3%

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