Question

Miller Company's contribution format income statement for the most recent month is shown below: Total $360,000 225,000 Per Unit Sales (45,000 units) Variable expenses $8.00 5.00 Contribution margin 3.00 135,000 Fixed expenses 49,000 $ 86,000 Net operating income 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 $1.20 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 $1.20 per unit, fixed expenses increase by $8,000, 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 20%, variable expenses increase by 20 cents per unit, and the number of units sold decreases by 7%? 1. Net operating income 2. Net operating income 3. Net operating income 4. Net operating income

Answer 1

1. Sales = 45,000 + (45,000*18%) = 53,100

	Total	Per unit
Sales (53,100 units)	$424,800	$8
Variable expenses	$265,500	$5
Contribution margin	$159,300	$3
Fixed expenses	$49,000
Net operating income	$110,300

2. Selling price per unit = $8 - $1.2 = $6.8

Units sold = 45,000 + (45,000*25%) = 56,250

	Total	Per unit
Sales (56,250 units)	$382,500	$6.8
Variable expenses	$281,250	$5
Contribution margin	$101,250	$1.8
Fixed expenses	$49,000
Net operating income	$52,250

3. Selling price per unit = $8 + $1.2 = $9.2

Fixed expenses = $49,000 + $8,000 = $57,000

Units sold = 45,000 - (45,000*3%) = 43,650

	Total	Per unit
Sales (43,650 units)	$401,580	$9.2
Variable expenses	$218,250	$5
Contribution margin	$183,330	$4.2
Fixed expenses	$57,000
Net operating income	$126,330

4. Selling price per unit = $8 + ($8*20%) = $9.6

Variable expenses per unit = $5 + $0.2 = $5.2

Units sold = 45,000 - (45,000*7%) = 41,850

	Total	Per unit
Sales (41,850 units)	$401,760	$9.6
Variable expenses	$217,620	$5.2
Contribution margin	$184,140	$4.4
Fixed expenses	$49,000
Net operating income	$135,140