Question

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

	Total			Per Unit
Sales (38,000 units)	$	228,000		$	6.00
Variable expenses		114,000			3.00
Contribution margin		114,000		$	3.00
Fixed expenses		48,000
Net operating income	$	66,000

Required:

(Consider each case independently):

1. What is the revised net operating income if unit sales increase by 20%?

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 16%?

3. What is the revised net operating income if the selling price increases by $1.40 per unit, fixed expenses increase by $9,000, and the number of units sold decreases by 4%?

4. What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 10%?

Answer 1

1.If unit sales increased by 20%

Sales=38000+20%=45600×6=273600

Less:Variable expenses45600×3=136800

Contribution 45600×3 =136800

Less:Fixed expenses =48000

Net operating income =88800

2.No of units increased by 16% and Selling price per unit decreased by 1.40

Selling price per unit=6-1.4=4.6

Sales =38000+16%=44080×4.6 =202768

Less:Variable expenses =44080×3 =132240

Contribution =70528

Less:Fixed expenses =48000

Net operating income =22528

3.Number of units decreased by 4% and Selling price per unit increased by 1.4 and fixed expenses increased by 9000

Selling price per unit =6+1.4=7.4

Fixed expenses =48000+9000=57000

Sales =38000-4%=36480×7.4   =269952

Less:Variable expenses 36480×3=109440

Contribution =160512

Less:Fixed expenses =57000

Net operating income =103512

4.Number of units decreased by 10% and Selling price per unit increased by 10% and variable expenses cost per unit increased by 3o cents

1$=100 Cents

Selling price per unit=6+10%=6.6

Variable expenses per unit =3+30=3.30

Sales =38000-10%=34200×6.6 =225720

Less:Variable expenses =34200×3.o=112860

Contribution =112860

Less:Fixed cost =48000

Net operating income =64860

Note

Contribution=Sales-Variable cost