Data for Hermann Corporation are shown below:
Per unit Percentage of sale
Selling price $75 100%
expenses 51 68
contribution margin 24% 32%
Fixed expenses are $75,000 per month and the company is selling 4,000 units per month.
Required:
a. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $4 per unit and increase unit sales by 25%.
b. Should the higher-quality components be used?
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