Question

Check Exercise 5-13 Changes in Selling Price, Sales Volume, Variable Cost per Unit, and Total Fixed Costs (LO5-1, LO5.4) Miller Company's contribution format income statement for the most recent month is shown below: Per Unit $10.00 Sales (30,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 380,000 210,000 90,000 47,eee $ 43,000 $ 3.ee Required: (Consider each case independently 1. What is the revised net operating income if unit sales increase by 13%? 2. What is the revised net operating income if the selling price decreases by $1.40 per unit and the number of units sold increases by 25%? 3. What is the revised net operating income if the selling price increases by $140 per unit, fixed expenses increase by $7,000, 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 10%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 9%? 1. Net operating income 2. Net operating income 3. Net operating income 4. Net operating income

Answer 1

1) If sales unit is increased by 13% the increased units will be = 30,000 + 13% of 30,000 = 33,900 units.

Due to increase in units total variable cost will also increase so contribution margin will remain same and so as fixed cost.

Net operating income = (Units * contribution margin ) - Fixed cost = $33,900 * 3 - $47,000 = $54,700

2) New Sale price = $ 8.60 and new units sold = 30,000 + 25% of 30,000 = 37,500 units

Net operating income = New units * (new sale rate - old variable cost ) - Fixed cost = 37,500 * ($8.60 - $7) - $47,000 = $13,000

3)New sales price = $ 8.60 , new fixed cost = $ 54,000 , new units sold = 30,000 - 4% of 30,000 = 28,800 units

Net operating income = 28,800 (8.60 - 7) - 54,000 = ($ 7,920) i.e net operating loss

4) New sale rate = $11 , new variable cost = $7.7 , new units sold = 30,000 - 9% of 30,000 = 27,300 units

Net operating income = 27,300 ( $11- $7.7) - $47,000 = $43,090