Question

Miller Company's contribution format income statement for the most recent month is shown below: Sales (31,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 155,000 62,000 93,000 44,000 $ 49,000 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 18%? 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 20%? 3. What is the revised net operating income if the selling price increases by $1.50 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 20%, variable expenses increase by 40 cents per unit, and the number of units sold decreases by 10%? 1. Net operating income 2. Net operating income 3. Net operating income 4. Net operating income

Answer 1

Solution:

Current unit sold: 31,000 units

1 increase 18% of sales unit

Sales now = 31,000 + 18%(31,000)

36,580 units

Sale (36,580×5) : $182,900

variable expense

(36,580×2)    73160  

Contributions margin $109,740

Fixed cost.    44000

Net operating income $65,740

2 Selling price decrease $1.5 per unit and unit sold increase 20%

Now unit sold : 31,000+ 20%(31,000) =37,200units

Sales price: $5 - $1.50 = $3.50

Sales(37,200×3.50)   $130,200

Variable expenses

(37,200×2) $74400

contribution margin. $55,800

Fixed cost.    $44000

Net operating income $11,800

3 Price increase by $1.50 , Fixed expense increase 7000 and unit sold decrease by 4%

Prices: 5 + 1.50 = 6.50

Fixed cost: 44,000 + 7,000 = $51,000

Unit sold = 31,000 - 4%(31,000) =29,760units

Sales (29,760 × 6.50): $193,440

Variable expenses

(29,760×2): $59520

Contributions margin. $133,920

Fixed cost. $51000

Net operating income. $82,920

4 selling price increases by 20%

Variable expenses increase by 40%

unit sold decrease by 10%

Now selling price = 5 + 20%(5) = $6

Variable expenses =2 + 40%(2)= $2.80

Sales units =31,000 - 10%(31,000)=27,900units

Sales(27,900×6) $167,400

Variable expense

(27,900×2.8): $78120

Contributions margin $89,280

Fixed cost.    $44000

Net operating income.   $45,280