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 46,000 $ 47,000 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 15%? 2. What is the revised net operating income if the selling price decreases by $1.10 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 $110 per unit, fixed expenses increase by $9,000, and the number of units sold decreases by 3%? 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 5%? $ 49,720 1. Net operating income 2. Net operating income 3. Net operating income 4. Net operating income

Answer 1

1.	Net operating income	$60,950
2.	Net operating income	$27,625
3.	Net operating income	$68,287
4.	Net operating income	$51,185

Explanation:

1.Sales increase by 15 %

Sales (31,000 units * 115% * $5)	178,250
Variable expenses (31,000 units * 115% * $2)	71,300
Contribution margin	106,950
Fixed expenses	46,000
Net operating income	$60,950

2. Selling price decreases by $1.10 per unit and the number of units sold increases by 25%

Sales [31,000 units * 125%] * ($5 - $1.10)	151,125
Variable expenses (31,000 units * 125% * $2)	77,500
Contribution margin	73,625
Fixed expenses	46,000
Net operating income	$27,625

3. Selling price increases by $1.10 per unit, fixed expenses increase by $9,000, and the number of units sold decreases by 3%

Sales [31,000 units * 97%] * ($5 + $1.10)	183,427
Variable expenses (31,000 units * 97% * $2)	60,140
Contribution margin	123,287
Fixed expenses (46,000 + 9,000)	55,000
Net operating income	$68,287

4.Selling price per unit increases by 10%, variable expenses increase by 20 cents per unit, and the number of units sold decreases by 5%

Sales  [31,000 units * 95%] * ($5 * 110%)	161,975
Variable expenses [31,000 units * 95%] * ($2 + $0.20)	64,790
Contribution margin	97,185
Fixed expenses	46,000
Net operating income	$51,185