ork - Chapter 5 6 Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling P

Question

ork - Chapter 5 6 Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume (LO5-4) The following information applies to the questions displayed below Data for Hermann Corporation are shown below Selling price Variable expenses s 21 Fixed expenses are $74,000 per month and the company is seling 4,400 units per month Exercise 5-5 Part 2 2-a. Refer to the original data Management is considering using higher-quality components that would increase the variable expense by S4 per unt. The marketing manager believes that the higher-quality product would increase sales by 25% per month. Calculate ne change in total contribution margin 2-b. Should the higher-quality components be used? Complete this question by entering your answers in the tabs below Req 2A Refer to the original data. Management is considering using higher-quality components that would increase the vaniable expense by $4 per unit. The marketing manager beleves that the higher-quality product would increase sales by 25% per month. Calculate the change in total contribution margin MacBook Air 4

Explanation / Answer

2a. Change in contribution Margin is as prepared below:

2b. Higher quality component should be used.

Original Higher Quality Components Description 4,400 units 4,400+25% = 5,500 Sales 70.00 308,000 70.00 385,000 Less: Variable Cost 49.00 215,600 53.00 291,500 Contribution Margin 21.00 92,400 17.00 93,500 Contribution Margin Ratio 30.00% 30.00% 24.29% Less: Fixed Cost 74,000 74,000 Operating Income/(loss) 21 18,400 19,500

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