Question

In: Accounting

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

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

Total Per Unit
Sales (31,000 units) $ 155,000 $ 5.00
Variable expenses 62,000 2.00
Contribution margin 93,000 $ 3.00
Fixed expenses 47,000
Net operating income $ 46,000

Required:

(Consider each case independently):

1. What is the revised net operating income if unit sales increase by 14%?

2. What is the revised net operating income if the selling price decreases by $1.10 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 $1.10 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 30 cents per unit, and the number of units sold decreases by 6%?

Solutions

Expert Solution

1.

Total Per unit
Sales (35,340 units × $5) $176,700 $5
Less: Variable Expenses (35,340 units ×$2) ($70,680) $2
Contribution Margin $106,020 $3
Less: Fixed expenses ($47,000)
Net operating income $59,020

Explanation:-

31,000 units + (31,000 units ×14%)
31,000 units + 4,340 units
35,340 units

2.

Total Per unit
Sales (38,440 units ×$3.9) $149,916 $3.9 ($5 - $1.1)
Less: Variable expenses (38,440 units × $2) $76,880 $2
Contribution margin $73,036 $1.9
Less: Fixed expenses ($47,000)
Net operating income $26,036

Explanation:-

31,000 units + (31,000 units ×24%)
31,000 units + 7,440 units
38,440 units

3.

Total Per uni
Sales (29,760 units × $6.1) $181,536 $6.1 ($5 + $1.1)
Less: Variable expenses (29,760 units × $2) ($59,520) $2
Contribution margin $122,016 $4.1
Less: Fixed expenses ($47,000 +$6,000) ($53,000)
Net operating income $69,016

Explanation:-

31,000 units - (31,000 units × 4%)
31,000 units - 1,240 units
29,760 units

4.

Total Per unit
Sales (29,140 × $6) $174,840 $6
Less: Variable expenses (29,140 × $2.3) ($67,022) $2.3
Contribution margin $107,818 3.7
Less: Fixed expenses ($47,000)
Net operating income $60,818

Explanation:-

31,000 units - (31,000 units × 6%)
31,000 units - 1,860 units
29,140 units
Selling price per unit = $5 + ($5 × 20%)
Selling price per unit = $5 + $1
Selling price per unit = $6
Variable expense per unit = $2 + (30 cents/100)
Variable expense per unit = $2 + $0.3
Variable expense per unit = $2.3

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