Question

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

	Total			Per Unit
Sales (30,000 units)	$	210,000		$	7.00
Variable expenses		120,000			4.00
Contribution margin		90,000		$	3.00
Fixed expenses		45,000
Net operating income	$	45,000

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 21%?

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 5%?

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 12%?

Answer 1

	Per unit	Units	Total
Revenue	7.00	30,000	210,000
Variable expense	(4.00)	30,000	(120,000)
Contribution margin	3.00		90,000
Fixed cost			(45,000)
Net Operating Income			45,000
If unit sale increased by 13%
	Per unit	Units	Total
Revenue	7.00	33,900	237,300
Variable expense	(4.00)	33,900	(135,600)
Contribution margin	3.00		101,700
Fixed cost			(45,000)
Net Operating Income			56,700
If sale price dip by 1.4 per unit and sale unit increase by 21%
	Per unit	Units	Total
Revenue	5.60	36,300	203,280
Variable expense	(4.00)	36,300	(145,200)
Contribution margin	1.60		58,080
Fixed cost			(45,000)
Net Operating Income			13,080
If sale price increase by 1.4 per unit, fixed expense increase by 6000 and sale unit decrease by 5%
	Per unit	Units	Total
Revenue	8.40	28,500	239,400
Variable expense	(4.00)	28,500	(114,000)
Contribution margin	4.40		125,400
Fixed cost			(51,000)
Net Operating Income			74,400
If sale price increase by 20%, variable expense increase by 40 cents and sale unit decrease by 12%
	Per unit	Units	Total
Revenue	8.40	26,400	221,760
Variable expense	(4.40)	26,400	(116,160)
Contribution margin	4.00		105,600
Fixed cost			(45,000)
Net Operating Income			60,600