Question

Miller Company’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (34,000 units) $ 272,000 $ 8.00 Variable expenses 170,000 5.00 Contribution margin 102,000 $ 3.00 Fixed expenses 43,000 Net operating income $ 59,000 Required: (Consider each case independently): 1. What is the revised net operating income if unit sales increase by 13%? 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 22%? 3. What is the revised net operating income if the selling price increases by $1.40 per unit, fixed expenses increase by $6,000, 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 20%, variable expenses increase by 40 cents per unit, and the number of units sold decreases by 6%?

Answer 1

Answer

Existing

Units	34,000
Sales	$          272,000
Variable Expenses	$          170,000
Contribution Margin	$          102,000
Fixed Expenses	$            43,000
Net Operating Income	$            59,000

Case 1

Units (34,000 + 13%)	38,420
Sales	$        307,360
Variable Expenses	$        192,100
Contribution Margin	$        115,260
Fixed Expenses	$          43,000
Net Operating Income	$          72,260
Net Operating income will increase by $13,260 (72,260 - 59,000)

Case 2

Units (34,000 + 22%)	41,480
New Selling Price ($8 - $1.4)	$           6.6
Sales	$ 273,768
Variable Expenses	$ 207,400
Contribution Margin	$    66,368
Fixed Expenses	$    43,000
Net Operating Income	$    23,368
Net Operating income will decrease by $35,632 (59,000 - 23,368)

Case 3

Units (34,000 - 4%)	32,640
New Selling Price ($8 + $1.4)	$                   9.4
New Fixed Cost (43,000 + 6,000)	$            49,000
Sales	$          306,816
Variable Expenses	$          163,200
Contribution Margin	$          143,616
Fixed Expenses	$            49,000
Net Operating Income	$            94,616
Net Operating income will increase by $35,616 (94,616 - 59,000)

Case 4

Units (34,000 - 6%)	31,960
New Selling Price ($8 + 20%)	$                 9.6
New Variable expenses ($5+$0.4)	$                 5.4
Sales	$        306,816
Variable Expenses	$        172,584
Contribution Margin	$        134,232
Fixed Expenses	$          43,000
Net Operating Income	$          91,232
Net Operating income will increase by $32,232 (91,232 - 59,000)