Question

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

	Total			Per Unit
Sales (40,000 units)	$	280,000		$	7.00
Variable expenses		160,000			4.00
Contribution margin		120,000		$	3.00
Fixed expenses		46,000
Net operating income	$	74,000

Required:

(Consider each case independently):

1. What is the revised net operating income if unit sales increase by 16%?

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 21%?

3. What is the revised net operating income if the selling price increases by $1.30 per unit, fixed expenses increase by $8,000, 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 10%, variable expenses increase by 40 cents per unit, and the number of units sold decreases by 13%?

Answer 1

1). Units sales = 40000 * 116% = 46400
Revised contribution = 46400 * $3 = $139,200
Less: Fixed cost = $46,000
Revised operating income = $93,200

2). Revised selling price = $7 - $1.3 = $5.7
Revised contribution per unit = $5.7 - $4 = $1.7
Revised sales units = 40000 * 121% = 48400

Revised contribution = 48400 * $1.7 = $82,280
Less: Fixed cost = $46,000
Revised operating income = $36,280

3). Revised selling price = $7 + $1.3 = $8.3
Revised contribution per unit = $8.3 - $4 = $4.3
Revised sales units = 40000 * 95% = 38000
Revised fixed cost = $46000 + $8000 = $54000

Revised contribution = 38000 * $4.3 = $163,400
Less: Fixed cost = $54,000
Revised operating income = $109,400

4). Revised selling price = $7 * 110% = $7.7
Revised variable cost = $4 + $0.40 = $4.4
Revised contribution per unit = $7.7 - $4.4 = $3.3
Revised sales units = 40000 * 87% = 34800

Revised contribution = 34800 * $3.3 = $114,840
Less: Fixed cost = $46,000
Revised operating income = $68,840