Question

Miller Company's contribution format income statement for the most recent month is shown below: Sales (40,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 320,000 200,000 120,000 45,000 $ 75,000 Per Unit $ 8.00 5.00 $3.00 Required: (Consider each case independently): 1. What is the revised net operating income if unit sales increase by 11%? 2. What is the revised net operating income if the selling price decreases by $1.50 per unit and the number of units sold increases by 23%? 3. What is the revised net operating income if the selling price increases by $1.50 per unit, fixed expenses increase by $9,000, 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 20 cents per unit, and the number of units sold decreases by 13%? $ $ 88,200 28,800 1. Net operating income 2. Net operating income 3. Net operating income 4. Net operating income

Answer 1

1.	Net operating income	$88,200
2.	Net operating income	$28,800
3.	Net operating income	$118,800
4.	Net operating income	$80,280

Explanation:

1.

Revised sales in units = 40,000 x 1.11 = 44,400   

Contribution margin per unit	$3
Contribution margin for 444,000 units (444,000 x $ 3)	$133,200
Less: Fixed expenses	$45,000
Net operating income	$88,200

Revised operating income will be $ 88,200 if sales increase by 11%.

2.

Revised sales in units = 40,000 x 1.23 = 49,200

Revised sales per unit = $ 8 - $ 1.50 = $ 6.50

Sales (49,200 x $ 6.50)	$      319,800
Less: Variable expenses (49,200 x $ 5)	$      246,000
Contribution margin	$         73,800
Less: Fixed expenses	$         45,000
Net operating income	$         28,800

Revised operating income will be $ 28,800 if sales increase by 23 % and selling price decreases by $ 1.50 per unit.

3.

Revised sales in units = 40,000 x 0.96 = 49,200

Revised sales per unit = $ 8 + $ 1.50 = $ 9.50

Revised fixed expenses = $ 45,000 + $ 9,000 = $ 54,000

Sales (38,400 x $ 9.50)	$                 364,800
Less: Variable expenses (38,400 x $ 5)	$                 192,000
Contribution margin	$                 172,800
Less: Fixed expenses	$                    54,000
Net operating income	$                 118,800

Revised operating income will be $ 118,800 if sales decrease by 4 %, selling price increases by $ 1.50 per unit and fixed expenses increases by $ 9,000

4.

Revised sales in units = 40,000 x 0.87 = 49,200

Revised sales per unit = $ 8 x $1.1 = $ 8.80

Revised variable expenses per unit = $ 5 + $ 0.2 = $ 5.20

Sales (34,800 x $ 8.80)	$ 306,240
Less: Variable expenses (34,800 x $ 5.20)	$ 180,960
Contribution margin	$ 125,280
Less: Fixed expenses	$   45,000
Net operating income	$   80,280

Revised operating income will be $ 80,280 if sales decrease by 13 %, selling price increases by 10 % per unit and variable expenses increases by $ 0.20 per unit.