Question

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

	Total			Per Unit
Sales (37,000 units)	$	222,000		$	6.00
Variable expenses		111,000			3.00
Contribution margin		111,000		$	3.00
Fixed expenses		41,000
Net operating income	$	70,000

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 $1.30 per unit and the number of units sold increases by 23%?

3. What is the revised net operating income if the selling price increases by $1.30 per unit, fixed expenses increase by $9,000, 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 20%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 7%?

Answer 1

a)

if the units sales increased by 18%

unit sales=37000*118%=43660 units

	$
sales (43660*$6)	261960
variable expenses (43660*$3)	130980
contribution margin	130980
fixed expense	41000
net operating income	89980

b)

selling price decreases by $1.30 per unit and the number of units sold increases by 23%

new selling price=$6-$1.30=$4.70

contribution per unit=$4.70-$3=$1.70

number of units sold=37000*123%=45510 units

	$
sales (45510*$4.70)	213897
variable expenses (45510*$3)	136530
contribution margin (45510*$1.7)	77367
fixed expense	41000
net operating income	36367

c)

selling price increases by $1.30 per unit, fixed expenses increase by $9,000, and the number of units sold decreases by 7%

new selling price=$6+$1.30=$7.30

contribution per unit=$7.30-$3=$4.30

number of units sold=37000*93%=34410 units

new fixed expense=$41000+$9000=$50000

	$
sales (34410*$7.30)	251193
variable expenses (34410*$3)	103230
contribution margin (34410*$4.30)	147963
fixed expense	50000
net operating income	97963

d)

selling price per unit increases by 20%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 7%

new selling price=$6*120%=$7.20

new variable expense=$3+$0.10=$3.10

contribution per unit=$7.20-$3.10=$4.10

number of units sold=37000*93%=34410 units

	$
sales (34410*$7.2)	247752
variable expenses (34410*$3.10)	106671
contribution margin (34410*$4.10)	141081
fixed expense	41000
net operating income	100081