Question

Miller Company's contribution format income statement for the most recent month is shown below. Sales (35,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 245,000 140, eee 105,000 50,000 $ 55,000 Per Unit $ 7.60 4.00 $ 3.00 Required: (Consider each case independently 1. What is the revised net operating income if unit sales increase by 20%? 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 179? 3. What is the revised net operating income if the selling price increases by $120 per unit, fixed expenses increase by $9,000, and the number of units sold decreases by 49? 4. What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 11%

Answer 1

Required 1:

Revised unit sales = 35,000 + 20% = 42,000 units

Sales (42,000 * $7)	$294,000
(-) Variable cost (42,000 * $4)	($168,000)
Contribution margin	$126,000
(-) Fixed expenses	($50,000)
Net operating income	$76,000

Required 2:

Revised selling price = ($7 - $1.20) = $5.80

Revised unit sales = 35,000 + 17% = 40,950 units

Sales (40,950 * $5.80)	$237,510
(-) Variable cost (40,950 * $4)	($163,800)
Contribution margin	$73,710
(-) Fixed expenses	($50,000)
Net operating income	$23,710

Required 3:

Revised selling price = ($7 + $1.20) = $8.20

Revised unit sales = 35,000 - 4% = 33,600 units

Revised fixed cost = $50,000 + $9,000 = $59,000

Sales (33,600 * $8.20)	$275,520
(-) Variable cost (33,600 * $4)	($134,400)
Contribution margin	$141,120
(-) Fixed expenses	($59,000)
Net operating income	$82,120

Required 4:

Revised selling price = ($7 + 10%) = $7.7

Revised unit sales = 35,000 - 11% = 31,150 units

Revised variable expenses = (31,150 * $4.30) = $133,945.

Sales (31,150 * $7.7)	$239,855
(-) Variable cost	($133,945)
Contribution margin	$105,910
(-) Fixed expenses	($50,000)
Net operating income	$55,910