Saved Help Save& Exit Check my Percent of Sales 100% 68 32% Per Unit $ 75 Sellin

Question

Saved Help Save& Exit Check my Percent of Sales 100% 68 32% Per Unit $ 75 Selling price Variable expenses Contribution margin 51 $ 24 Fixed expenses are $75,000 per month and the company is selling 4,000 units per month Refer to the original data. Management is considering using higher-quality components that would increase the variable expense A per unit. The marketing manager believes that the higher-quality product would increase sales by 25% per month. Calculate the nge in total contribution margin. Should the higher-quality components be used? Complete this question by entering your answers in the tabs below. Req 2A Req 2B 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. Total contribution ma

Explanation / Answer

Calculate change in contribution margin :

Total contribution margin increase by $20000

Yes, high quality components should be used.

Incremental sales (4000*25%*75) 75000 Incremental cost (4000*25%*55) (55000) Incremental contribution margin 20000

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