Question

Miller Company’s most recent contribution format income statement is shown below:

	Total	Per Unit
Sales (39,000 units)	$273,000	$7.00
Variable expenses	156,000	4.00
Contribution margin	117,000	$3.00
Fixed expenses	46,000
Net operating income	$ 71,000

Required:

Prepare a new contribution format income statement under each of the following conditions (consider each case independently): (Do not round intermediate calculations. Round your "Per unit" answers to 2 decimal places.)

   

1. The number of units sold increases by 15%.

2. The selling price decreases by $1.30 per unit, and the number of units sold increases by 19%.

3. The selling price increases by $1.30 per unit, fixed expenses increase by $9,000, and the number of units sold decreases by 4%.

4. The selling price increases by 10%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 7%.

     

Answer 1

Solution :-

1. The number of units sold increases by 15%. Therefore, new no. of units would be 39000*115% = 44850 Units

	Total	Per unit
Sales (44850 units)	$313950	$7.00
Less :Variable expenses	$179400	$4.00
Contribution margin	$134550	$3.00
Less :Fixed expenses	$46000
Net operating income	$88550

2.The selling price decreases by $1.30 per unit, and the number of units sold increases by 19%. Therefore, new no. of units would be 39000*119% = 46410 Units and new selling price = $7.00 - $1.30 = $5.70

	Total	Per unit
Sales (46410 units)	$264537	$5.70
Less :Variable expenses	$185640	$4.00
Contribution margin	$78897	$1.70
Less :Fixed expenses	$46000
Net operating income	$32897

3.The selling price increases by $1.30 per unit, fixed expenses increase by $9,000, and the number of units sold decreases by 4%. Therefore, new no. of units would be 39000*96% = 37440 Units and new selling price = $7.00 + $1.30 = $8.30 and the new fixed expenses = $46000 + $9000 = $55000.

	Total	Per unit
Sales (37440 units)	$310752	$8.30
Less :Variable expenses	$149760	$4.00
Contribution margin	$160992	$4.30
Less :Fixed expenses	$55000
Net operating income	$105992

4. The selling price increases by 10%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 7%. Therefore, new no. of units would be 39000*93% = 36270 Units and new selling price = $7.00 *110% = $7.70 and the new variable expenses = $4 *130% =$5.20.

	Total	Per unit
Sales (36270 units)	$279279	$7.70
Less :Variable expenses	$188604	$5.20
Contribution margin	$90675	$2.50
Less :Fixed expenses	$46000
Net operating income	$44675