Question

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

	Total			Per Unit
Sales (38,000 units)	$	342,000		$	9.00
Variable expenses		228,000			6.00
Contribution margin		114,000		$	3.00
Fixed expenses		47,000
Net operating income	$	67,000

Required:

(Consider each case independently):

1. What is the revised net operating income if unit sales increase by 19%?

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 15%?

3. What is the revised net operating income if the selling price increases by $1.20 per unit, fixed expenses increase by $9,000, and the number of units sold decreases by 6%?

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 15%?

Answer 1

1) Sales units increase by 19%

Revised sales = 38,000 + 19%*38,000 = 45,220

Total contribution margin = 45,220*3 = $135,660

Fixed cost = 47,000

Net operating income = $88,660

2)

Revised sales units = 38,000 + 15%*38,000 = 43,700

Revised contribution margin = 3 - 1.20 = $1.80

Revised tota contribution margin = 43,700*1.80

= $78,660

Fixed cost = 47,000

Net operating income = $31,660

3)

Revised sales units = 38,000 - 6%*38,000 = 35,720

Revised fixed cost = 47,000 + 9,000 = $56,000

Revised contribution margin per unit = 3 + 1.20 = $4.20

Revised total contribution margin = 35,720*4.20

= $150,024

Net operating income

= $94,024

4)

Revised sales units = 38,000 - 15%*38,000 = 32,300

Revised selling price = 9 + 10%*9 = $9.90

Revised variable cost = 6 + 0.40 = $6.40

Revised contribution margin = $3.50

Revised contribution margin total

= 32,300*3.50

= $113,050

Fixed cost = 47,000

Operating income

= $66,050

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