Question

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

	Total			Per Unit
Sales (32,000 units)	$	160,000		$	5.00
Variable expenses		64,000			2.00
Contribution margin		96,000		$	3.00
Fixed expenses		46,000
Net operating income	$	50,000

Required:

(Consider each case independently):

1. What is the revised net operating income if unit sales increase by 17%?

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 21%?

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 7%?

4. What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 40 cents per unit, and the number of units sold decreases by 10%?

Answer 1

Orignal	Units	Per Units	Amount
Revenue	32000	$      5.00	$ 160,000.00
Variable Expenses	32000	$      2.00	$   64,000.00
Contribution Margin			$   96,000.00
Fixed Expenses			$   46,000.00
Net Operating Income			$   50,000.00
Explanation : We will multiply units by 1.17
Unit Sale increase by 17%	Units	Per Units	Amount
Revenue	37440	$      5.00	$ 187,200.00
Variable Expenses	37440	$      2.00	$   74,880.00
Contribution Margin			$ 112,320.00
Fixed Expenses			$   46,000.00
Net Operating Income			$   66,320.00
Explanation : We will multiply units by 1.21 and reduce the Selling price to $3.8
Unit Sale increase by 21% & Selling Price decrease by $1.2/unit	Units	Per Units	Amount
Revenue	38720	$      3.80	$ 147,136.00
Variable Expenses	38720	$      2.00	$   77,440.00
Contribution Margin			$   69,696.00
Fixed Expenses			$   46,000.00
Net Operating Income			$   23,696.00
Explanation : We will multiply units by 0.93 , increase the selling price to $6.2 and increase the Fixed exp by $8K
Unit Sale decrease by 7% & Selling Price increase by $1.2/unit , Fixed Exp increase by 8K	Units	Per Units	Amount
Revenue	29760	$      6.20	$ 184,512.00
Variable Expenses	29760	$      2.00	$   59,520.00
Contribution Margin			$ 124,992.00
Fixed Expenses			$   54,000.00
Net Operating Income			$   70,992.00
Explanation : We will multiply units by 0.90 , multiply the selling price by 1.1, and increase the Variable cost by $0.4 per unit
Unit Sale decrease by 10% & Selling Price increase by 10% , Variable Cost increase by $0.4 /unit	Units	Per Units	Amount
Revenue	28800	$      5.50	$ 158,400.00
Variable Expenses	28800	$      2.40	$   69,120.00
Contribution Margin			$   89,280.00
Fixed Expenses			$   46,000.00
Net Operating Income			$   43,280.00