Question

Miller Company's contribution format income statement for the most recent month is shown below: Sales (38,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 190,000 76,000 114,000 49,000 $ 65,000 Per Unit $5.00 2.00 $3.00 Required: (Consider each case independently): 1. What is the revised net operating income if unit sales increase by 16%? 2. What is the revised net operating income if the selling price decreases by $1.20 per unit and the number of units sold increases by 22%? 3. What is the revised net operating income if the selling price increases by $1.20 per unit, fixed expenses increase by $7000, and the number of units sold decreases by 4%? 4. What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 14%? 1. Net operating income 2. Net operating income 3. Net operating income 4. Net operating income

Answer 1

Number of units sold= 190,000/$5     

=38,000 units

Revised Net Operating Income under each cases:

1. Sales (38,000 x 1.16) x $5 $220,400

Less: Variable expenses (38000 x 1.16) x $2 $88,160

Contribution Margin $132,240

Less: Fixed expenses $49,000

Net Operating Income    $83,240

2.  Sales (38,000 x 1.22) x $3.8 $176,168

Less: Variable expenses (38,000 x 1.22) x $2 $92,720

Contribution Margin $83,448

   Less: Fixed expenses $49,000

Net Operating Income $34,448

3.  Sales (38,000 x .96) x $6.2    $226,176

Less: Variable expenses(38,000 x .96) x $2 $72960

Contribution Margin $153,216

Less: Fixed expenses ($49,000 + $7000) $56000

Net Operating  Income $97,216

4.  Sales (38,000 x .86) x $6 $196,080

Less: Variable expenses (38,000 x .86) x $2.3    $75,164

Contribution Margin $120,916

  Less: Fixed expenses $49,000

  Net Operating Income $71916