Miller Company’s contribution format income statement for the most recent month is shown below:
Total | Per Unit | |||||
Sales (41,000 units) | $ | 246,000 | $ | 6.00 | ||
Variable expenses | 123,000 | 3.00 | ||||
Contribution margin | 123,000 | $ | 3.00 | |||
Fixed expenses | 50,000 | |||||
Net operating income | $ | 73,000 | ||||
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 $1.20 per unit and the number of units sold increases by 17%?
3. What is the revised net operating income if the selling price increases by $1.20 per unit, fixed expenses increase by $7,000, and the number of units sold decreases by 7%?
4. What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 10%?
Ans:
1 |
Net operating income |
$86,530 |
2 |
Net operating income |
$36,346 |
3 |
Net operating income |
$103,146 |
4 |
Net operating income |
$93,910 |
Working:
1) If unit sale increased by 11% |
|||||
41,000units*111%=45,510units |
|||||
Per unit $ |
Units |
Total $ |
|||
Revenue |
6.00 |
45,510 |
273,060 |
||
Variable expense |
(3.00) |
45,510 |
(136,530) |
||
Contribution margin |
3.00 |
136,530 |
|||
Fixed cost |
(50,000) |
||||
Net Operating Income |
$86,530 |
||||
2) If sale price decreases by $1.20per unit and sale unit increase by 17% |
|||||
Revised selling price = 6-1.2=$4.8 Revised sales units = 41,000units*117%=47,970units |
|||||
Per unit $ |
Units |
Total $ |
|||
Revenue |
4.80 |
47,970 |
230,256 |
||
Variable expense |
(3.00) |
47,970 |
(143,910) |
||
Contribution margin |
1.80 |
86,346 |
|||
Fixed cost |
(50,000) |
||||
Net Operating Income |
$36,346 |
||||
3) If sale price increase by $1.20 per unit, fixed expense increase by $7,000 and sale unit decrease by 7% |
|||||
Revised selling price = 6+1.2=$7.2 Revised sales units = 41,000units*93%=38,130units |
|||||
Per unit $ |
Units |
Total $ |
|||
Revenue |
7.20 |
38,130 |
274,536 |
||
Variable expense |
(3.00) |
38,130 |
(114,390) |
||
Contribution margin |
4.20 |
160,146 |
|||
Fixed cost (50,000+7,000) |
(57,000) |
||||
Net Operating Income |
$103,146 |
||||
4) If sale price increase by 20%, variable expense increase by 30 cents and sale unit decrease by 10% |
|||||
Revised selling price = $6*120%=$7.2 Revised sales units = 41,000units*90%=36,900units |
|||||
Per unit $ |
Units |
Total $ |
|||
Revenue |
7.20 |
36,900 |
265,680 |
||
Variable expense $3+30cents=$3.30 |
(3.30) |
36,900 |
(121,770) |
||
Contribution margin |
3.90 |
143,910 |
|||
Fixed cost |
(50,000) |
||||
Net Operating Income |
$93,910 |
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