Question

Miller Company's contribution format income statement for the most recent month is shown below. Sales (20,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $300,000 180, eee 128,eee 7e, eee $ 50,00 Per Unit $15.ee 9.ee $ 6.00 Required: (Consider each case independently 1. What is the revised net operating income if unit sales increase by 15%? 2. What is the revised net operating income if the selling price decreases by $150 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 $1.50 per unit, fixed expenses increase by $20,000, and the number of units sold decreases by 5%? 4. What is the revised net operating income if the selling price per unit increases by 12%, variable expenses increase by 60 cents per unit, and the number of units sold decreases by 10%? 1. Net operating income 2. Not operating income 3. Net operating income 4. Net operating income

Answer 1

Case 1:
	If unit sales increase by 15%
	Revised Sales		=	20,000 units * 115%		=	23,000.00
	Revised Contribution @ $6 per unit					=	$138,000.00
	Fixed Expenses					=	$70,000.00
	Net Operating Income						$68,000.00
Case 2:
	If Selling Price decreases by $1.50 & unit sales increase by 25%
	Revised Sales Price		=	$15-$1.5		=	$13.50
	Revised Contribution		=	$13.5 - $ 9 (Variable Cost)		=	$4.50
	Revised Sales Units		=	20,000 units * 125%			25,000.00
	Revised Contribution @ $4.5 per unit					=	$112,500.00
	Fixed Expenses					=	$70,000.00
	Net Operating Income						$42,500.00
Case 3:
	If Selling Price increases by $1.50, Fixed Expenses increase by $20,000 & unit sales decrease by 5%
	Revised Sales Price		=	$15+$1.5		=	$16.50
	Revised Contribution		=	$16.5 - $ 9 (Variable Cost)		=	$7.50
	Revised Sales Units		=	20,000 units * 95%			19,000.00
	Revised Contribution @ $7.5 per unit					=	$142,500.00
	Fixed Expenses					=	$90,000.00
	Net Operating Income						$52,500.00
Case 4:
	If Selling Price increases by 12%, Variable Expenses increase by $0.6 & unit sales decrease by 10%
	Revised Sales Price		=	$15*112%		=	$16.80
	Revised Contribution		=	$16.80 - $ 8.4 (Variable Cost)		=	$8.40
	Revised Sales Units		=	20,000 units * 90%			18,000.00
	Revised Contribution @ $7.5 per unit					=	$151,200.00
	Fixed Expenses					=	$70,000.00
	Net Operating Income						$81,200.00