5-5, 56, 5-11-60 points Check my work Required information The following informa

Question

5-5, 56, 5-11-60 points Check my work Required information The following information applies to the questions displayed below) Data for Hermann Corporation are shown below Percent s 60 39 s 21 Sal 100% 65 Selling price Variable expenses Contribution margin 35% Fixed expenses are $72.000 per month and the company is selling 4.200 units per month. 2-a. Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $4 per unit. The marketing manager believes that the higher-quality product would increase sales by 25% per month Calculate the change in total contribution margin 2-b. Should the higher-quality components be used? OLL

Explanation / Answer

2a) Prepare incremental analysis :

2b) Yes, high quality product should be used

Incremental revenue (4200*25%*60) 63000 Incremental cost (4200*25%*43) (45150) Incremental profit 17850

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