Question

Miller Company’s contribution format income statement for the most recent month is shown below:

Total Per Unit Sales (42,000 units) $420,000 (total) $10.00 (per unit)

Variable expenses 294,000   7.00

Contribution margin 126,000 $ 3.00

Fixed expenses 42,000

Net operating income   $84,000

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 21%?

3. What is the revised net operating income if the selling price increases by $1.40 per unit, fixed expenses increase by $5,000, and the number of units sold decreases by 6%?

4. What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 20 cents per unit, and the number of units sold decreases by 8%?

Answer 1

1. Unit Sales = 42,000 Units + 13% of 42,000 Units = 47,460 Units

Unit Sales	47,460
Selling Price Per Unit	$10
Total Sales	$4,74,600	Unit Sales 47,460 Units * Selling Price Per Unit
Less: Variable Expenses	$3,32,220	Unit Sales 47,460 Units * Variable Expense Per Unit $7
Contribution Margin	$1,42,380
Less: Fixed Cost	$42,000
Net Operating Income	$1,00,380

2. Selling Price Per Unit = $10 - $1.40 = $8.6

Unit Sales = 42,000 Units + 21% of 42,000 Units = 50,820 Units

Unit Sales	50,820
Selling Price Per Unit	$8.6
Total Sales	$4,37,052	Unit Sales 50,820 Units * Selling Price Per Unit
Less: Variable Expenses	$3,55,740	Unit Sales 50,820 Units * Variable Expense Per Unit $7
Contribution Margin	$81,312
Less: Fixed Cost	$42,000
Net Operating Income	$39,312

3. Selling Price Per Unit = $10 + $1.40 = $11.40

Fixed Expenses = $42,000 + $5,000 = $47,000

Number of Units Sold = 42,000 Units – 6% of 42,000 Units = 39,480 Units

Unit Sales	39,480
Selling Price Per Unit	$11.4
Total Sales	$4,50,072	Unit Sales 39,480 Units * Selling Price Per Unit
Less: Variable Expenses	$2,76,360	Unit Sales 39,480 Units * Variable Expense Per Unit $7
Contribution Margin	$1,73,712
Less: Fixed Cost	$47,000
Net Opearting Income	$1,26,712

4. Selling Price Per Unit = $10 + 20% of $10 = $12

Variable Expenses Per Unit = $7 + 20 Cents = $7.2

Unit Sales = 42,000 Units – 8% of 42,000 Units = 38,640 Units

Unit Sales	38,640
Selling Price Per Unit	$12
Total Sales	$4,63,680	Unit Sales 38,640 Units * Selling Price Per Unit
Less: Variable Expenses	$2,78,208	Unit Sales 38,640 Units * Variable Expense Per Unit $7.20
Contribution Margin	$1,85,472
Less: Fixed Cost	$42,000
Net Operating Income	$1,43,472