6 0 Required information The following information applies to the questions disp
ID: 2515494 • Letter: 6
Question
6 0 Required information The following information applies to the questions displayed below. Data for Hermann Corporation are shown below Part 2 of 2 10 points Percent of Per Unit $ 125 Selling price Variable expenses Contribution margin 1008 64 368 Skipped 80 5 45 Fixed expenses are $85,000 per month and the company is selling 2,700 units per month Hint 2-a. Refer to the original data. Management is considering using higher-quality components that would increase the variable expense 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. 2-b. Should the higher-quality components be used? PHint Complete this question by entering your answers in the tabs below Req 2A Req 28 Refer to the original data. Management is considering using higher-quality components that would increase the variable expense 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 Next>Explanation / Answer
Answer to Question No. 6:
Answer 2-a.
Current Scenario:
Selling Price per unit = $125
Variable Expenses per unit = $80
Contribution Margin per unit = $45
Sales Volume = 2,700
Contribution Margin = Contribution Margin per unit * Sales Volume
Contribution Margin = $45 * 2,700
Contribution Margin = $121,500
Budgeted Scenario:
Selling Price per unit = $125
New Variable Expenses per unit = $80 + $5
New Variable Expenses per unit = $85
New Contribution Margin = Selling Price per unit - New Variable Expenses per unit
New Contribution Margin = $125 - $85
New Contribution Margin = $40
New Sales Volume = 2,700 units * 120%
New Sales Volume = 3,240 units
New Contribution Margin = New Sales Volume * New Contribution Margin
New Contribution Margin = 3,240 * $40
New Contribution Margin = $129,600
Increase in Contribution Margin = $129,600 - $121,500
Increase in Contribution Margin = $8,100
Total contribution margin increases by $8,100
Answer to 2-b.
Higher-quality components should be used.
Answer to Question 7:
Answer 1.
Contribution Margin per unit = Selling Price per unit - Variable Costs per unit
Contribution Margin per unit = $22 - $18
Contribution Margin per unit = $4
Breakeven Point in unit sales = Fixed Expenses / Contribution Margin per unit
Breakeven Point in unit sales = $9,600 / $4
Breakeven Point in unit sales = 2,400
Answer 2.
Breakeven Point in dollar sales = Breakeven Point in unit sales * Selling Price per unit
Breakeven Point in dollar sales = 2,400 * $22
Breakeven Point in dollar sales = $52,800
Answer 3.
Breakeven Point in unit sales = Fixed Expenses / Contribution Margin per unit
Breakeven Point in unit sales = $10,200 / $4
Breakeven Point in unit sales = 2,550
Breakeven Point in dollar sales = Breakeven Point in unit sales * Selling Price per unit
Breakeven Point in dollar sales = 2,550 * $22
Breakeven Point in dollar sales = $56,100
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