Question

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

	Total			Per Unit
Sales (36,000 units)	$	216,000		$	6.00
Variable expenses		108,000			3.00
Contribution margin		108,000		$	3.00
Fixed expenses		41,000
Net operating income	$	67,000

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 18%?

3. What is the revised net operating income if the selling price increases by $1.20 per unit, fixed expenses increase by $6,000, 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 11%?

Answer 1

Answer 1)

Calculation of revised net operating income if unit sales increase by 17%

	Amount (In $)
Sales (42,120 units X $ 6 per unit)	252,720
Less: Variable expenses (42,120 units X $ 3 per unit)	126,360
Contribution margin	126,360
less: Fixed expenses	41,000
Net Operating Income	85,360

Therefore the net operating income of the company will be $ 85,360.

Working Note:

Calculation of revised number of units sold

Revised number of units sold = 36,000 units X 117%

                                                       = 42,120 units

Answer 2)

Calculation of revised net operating income if selling price decrease by $ 1.20 per unit and number of units sold increase by 18%

	Amount (In $)
Sales (42,480 units X $ 4.80 per unit)	203,904
Less: Variable expenses (42,480 units X $ 3 per unit)	127,440
Contribution margin	76,464
less: Fixed expenses	41,000
Net Operating Income	35,464

Therefore the revised net operating income of the company will be $ 35,464.

Working Note:

Calculation of revised number of units sold

Revised number of units sold = 36,000 units X 118%

                                                       = 42,480 units

Calculation of revised selling price per unit

Revised selling price per unit = $ 6.00 per unit - $ 1.20 per unit

                                                      = $ 4.80 per unit

Answer 3)

Calculation of revised net operating income if selling price increases by $ 1.20 per unit, fixed expenses increase by $ 6,000 and number of units sold decreases by 6%

	Amount (In $)
Sales (33,840 units X $ 7.20 per unit)	243,648
Less: Variable expenses (33,840 units X $ 3 per unit)	101,520
Contribution margin	142,128
less: Fixed expenses	47,000
Net Operating Income	95,128

Therefore the revised net operating income of the company will be $ 95,128.

Working Note:

Calculation of revised number of units sold

Revised number of units sold = 36,000 units X 94%

                                                       = 33,840 units

Calculation of revised selling price per unit

Revised selling price per unit = $ 6.00 per unit + $ 1.20 per unit

                                                      = $ 7.20 per unit

Calculation of revised fixed expenses

Revised Fixed expenses = $ 41,000 + $ 6,000

                                            = $ 47,000

Answer 4)

Calculation of revised net operating income if selling price per unit increase by 10%, variance expenses increase by 40 cents per unit and number of units sold decrease by 11%

	Amount (In $)
Sales (32,040 units X $ 6.60 per unit)	211,464
Less: Variable expenses (32,040 units X $ 3.40 per unit)	108,936
Contribution margin	102,528
less: Fixed expenses	41,000
Net Operating Income	61,528

Therefore the revised net operating income of the company will be $ 61,528.

Working Note:

Working Note:

Calculation of revised number of units sold

Revised number of units sold = 36,000 units X 89%

                                                       = 32,040 units

Calculation of revised selling price per unit

Revised selling price per unit = $ 6.00 per unit X 110%

                                                      = $ 6.60 per unit

Calculation of revised variable expenses per unit

Revised variable expenses per unit = $ 3.00 per unit + $ 0.40 per unit

                                                                 = $ 3.40 per unit