Required information Exercise 5-5 Changes in Variable Costs, Fixed Costs, Sellin
ID: 2544474 • Letter: R
Question
Required information Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO5-4) [The following information applies to the questions displayed belowJ Data for Hermann Corporation are shown below: Percent UnitSales 100% Selling price Variable expenses Contribution margin s 80 44 s 36 458 Fixed expenses are $76,000 per month and the company is selling 2,500 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 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? 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 S4 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.Explanation / Answer
Solution:-
Following table shows the working:-
Particulars
Original Data
Data after High Quality Product
Value(in $)
Value (in $)
Sales
200000 = (2500*80)
250000 = (3125*80)
Less:- Variable Cost
110000 = (2500*44)
150000 ( 3125*48)
Contribution Margin
90000
100000
% contribution Margin
90000/200000*100 = 45%
100000/250000*100 = 40%
Notes :-
Variable Cost after High Quality Product = $ 44 + 120/100*44 =$ 48
Particulars
Original Data
Data after High Quality Product
Value(in $)
Value (in $)
Sales
200000 = (2500*80)
250000 = (3125*80)
Less:- Variable Cost
110000 = (2500*44)
150000 ( 3125*48)
Contribution Margin
90000
100000
% contribution Margin
90000/200000*100 = 45%
100000/250000*100 = 40%
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