Question

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

	Total			Per Unit
Sales (44,000 units)	$	308,000		$	7.00
Variable expenses		176,000			4.00
Contribution margin		132,000		$	3.00
Fixed expenses		40,000
Net operating income	$	92,000

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 24%?

3. What is the revised net operating income if the selling price increases by $1.20 per unit, fixed expenses increase by $8,000, 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 30 cents per unit, and the number of units sold decreases by 6%?

Answer 1

Requirement 1:

Sales [(44,000*1.17) x $7.00]	$360,360
Variable expenses [(44,000*1.17) x $4.00]	($205,920)
Contribution margin	$154,440
Fixed expenses	($132,000)
Revised Net operating income(loss)	$22,440

Requirement 2:

Sales [(44,000*1.24) x ($7.00-$1.20)]	$316,448
Variable expenses [(44,000*1.24) x $4.00]	($218,240)
Contribution margin	$98,208
Fixed expenses	($132,000)
Revised Net operating income(loss)	($33,792)

Requirement 3:

Sales [(44,000*0.96) x ($7.00+$1.20)]	$346,368
Variable expenses [(44,000*0.96) x $4.00]	($168,960)
Contribution margin	$177,408
Fixed expenses [40,000 + 8000]	($48,000)
Revised Net operating income(loss)	$129,408

Requirement 4:

Sales [(44,000*0.94) x ($7.00*1.20)]	$347,424
Variable expenses [(44,000*0.94) x ($4.00*1.30)]	($215,072)
Contribution margin	$132,352
Fixed expenses	($40,000)
Revised Net operating income(loss)	$92,352