Question

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

	Total			Per Unit
Sales (36,000 units)	$	216,000		$	6.00
Variable expenses		108,000			3.00
Contribution margin		108,000		$	3.00
Fixed expenses		44,000
Net operating income	$	64,000

Required:

(Consider each case independently):

1. What is the revised net operating income if unit sales increase by 18%?

2. What is the revised net operating income if the selling price decreases by $1.30 per unit and the number of units sold increases by 24%?

3. What is the revised net operating income if the selling price increases by $1.30 per unit, fixed expenses increase by $8,000, and the number of units sold decreases by 6%?

4. What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 5%?

Miller Company's contribution format income statement for the most recent month is shown below: Sales (36,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $216,000 188,000 108,000 44,000 $ 64,000 Per Unit $6.00 3.00 $3.00 Required: (Consider each case independently): 1. What is the revised net operating income if unit sales increase by 18%? 2. What is the revised net operating income if the selling price decreases by $1.30 per unit and the number of units sold increases by 24%? 3. What is the revised net operating income if the selling price increases by $1.30 per unit, fixed expenses increase by $8,000, and the number of units sold decreases by 6%? 4. What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 5%? Net operating income Net operating income Net operating income Net operating income

Answer 1

1	Net operating income	$       83,440
2	Net operating income	$       31,888
3	Net operating income	$       93,512
4	Net operating income	$       75,700

Working:

1. Number of units sold = 36000 x 1.18 = 42480

Miller Company
Contribution Income Statement
	Total	Per Unit
Sales (42480 units)	254880	$       6.00
Variable expenses	127440	3.00
Contribution margin	127440	$       3.00
Fixed expenses	44000
Net operating income	83440

2. Selling price = $6.00 - $1.30 = $4.70

Number of units sold = 36000 x 1.24 = 44640

Miller Company
Contribution Income Statement
	Total	Per Unit
Sales (44640 units)	209808	$       4.70
Variable expenses	133920	3.00
Contribution margin	75888	$       1.70
Fixed expenses	44000
Net operating income	31888

3. Selling price = $6.00 + $1.30 = $7.30

Fixed expenses = $44000 + $8000 = $52000

Number of units sold = 36000 x (1 - 0.06) = 36000 x 0.94 = 33840

Miller Company
Contribution Income Statement
	Total	Per Unit
Sales (33840 units)	247032	$       7.30
Variable expenses	101520	3.00
Contribution margin	145512	$       4.30
Fixed expenses	52000
Net operating income	93512

4. Selling price = $6.00 x 1.10 = $6.60

Variable expenses = $3.00 + $0.10 = $3.10

Number of units sold = 36000 x (1 - 0.05) = 36000 x 0.95 = 34200

Miller Company
Contribution Income Statement
	Total	Per Unit
Sales (34200 units)	225720	$       6.60
Variable expenses	106020	3.10
Contribution margin	119700	$       3.50
Fixed expenses	44000
Net operating income	75700