Question

Chapter 6 quiz

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

	Total			Per Unit
Sales (43,000 units)	$	301,000		$	7.00
Variable expenses		172,000			4.00
Contribution margin		129,000		$	3.00
Fixed expenses		47,000
Net operating income	$	82,000

Required:

(Consider each case independently):

1. What is the revised net operating income if unit sales increase by 12%?

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 18%?

3. What is the revised net operating income if the selling price increases by $1.30 per unit, fixed expenses increase by $7,000, and the number of units sold decreases by 8%?

4. What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 20 cents per unit, and the number of units sold decreases by 12%?

Answer 1

Ans .

Case (i) : Revised net operating income if Unit sale increases by 12%

Revised no. of Unit sold = 43,000 + 12% of 43,000 = 48,160

Particulars	Per Unit ($)	Total ($)
Sales (48,160)	7	337,120
Variable Expenses	4	192,640
Contribution Margin	3	144,480
Fixed Expenses		47,000
Net Operating Income		97,480

Net Operating Income

$97,480

Case (ii) : Revised Net Operating Income if the selling price decreases by $1.30 per unit and Unit sold increase by 18%

Revised No. of Units = 43,000 + 18% of 43,000 = 50,740

Revised Selling Price Per Unit = $ 7 - $ 1.30 = $ 5.7

Particulars	Per Unit ($)	Total ($)
Sales (50,740)	5.7	289,218
Variable Expenses	4	202,960
Contribution Margin	1.7	86,258
Fixed Expenses		47,000
Net Operating Income		39,258

Net Operating Income

$39,258

Case (iii) : Revised Net Operating Income if Selling Price increase by $1.30 , Fixed Expenses Increase by $7,000 and No. Of Unit sold Decrease by 8%

Revised No. of Unit = 43,000 - 43,000 * 8% = 39,560

Selling Price = $ 7 + $ 1.30 = $ 8.30

Fixed Expenses = $47,000 + $ 7,000 = $54,000

Particulars	Per Unit ($)	Total ($)
Sales (39,560)	8.30	328,348
Variable Expenses	4	158,240
Contribution Margin	4.30	170,108
Fixed Expenses		54,000
Net Operating Income		116,108

Net Operating Income

$116,108

Case (iv) : Revised Net Operating Income if Selling Price increase by 10% , Variable Expense increase by 20% p.u and No. of Unit sold Decrease by 12%

Revised No. of Unit sold = 43,000 - 43,000 * 12% = 37,840

Selling Price = $ 7 + 10% of $ 7 = $ 7.7

Variable Expenses = $ 4 + 20% of $4 = $4.8

Particulars	Per Unit ($)	Total ($)
Sales(37,840)	7.7	291,368
Variable Expenses	4.8	181,632
Contribution Margin	2.9	109,736
Fixed Expenses		47,000
Net Operating Income		62,736

Net Operating Income

$62,736