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

3. At present, the company is selling 10,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. Outback Outfitters Present 10,000 Stoves Total Per unit Proposed Stoves Total Per unit 4. Refer to the data in (3) above. How many stoves would have to be sold at the new selling price to yield a minimum net operating income of $76,000 per month? (Round your answer to the nearest whole number.) Number of stoves to be sold

Answer 1

Outback Outfitters Present Proposed 10000 Stoves 1 2500 Stoves Total Per Unit Total Per Unit Sale $70,000 $7.00 $78,750 $6.30 (10,000 * $7) (10,000 * $6.3) Les: Variable Expenses $40,000 $4.00 $50,000 $4.00 (10,000 * 4) (12,500 * 4) Contribution Margin $30,000 $3.00 $28,750 $2.30 ($70,000-$40,000) ($78,750-$50,000) Less: Fixed Expenses $46,000 $46,000 (Given) (Given) Net Operating Income -$16,000 -$17,250 4. Number of Units to be sold at new price Net Operating Profit Add: Fixed Expenses Contribution Margin Contribution Margin per Sale Units Jaroin per $76,000.00 $46,000.00 $1,22,000.00 $2.30 53,043 Units ($122,000 / $2.3)