Question

Can someone please explain step-by-step if possible?

Miller Company’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (37,000 units) $ 222,000 $ 6.00

Variable expenses 111,000 3.00

Contribution margin 111,000 $ 3.00

Fixed expenses 44,000 Net operating income $ 67,000

Required: (Consider each case independently):

1. What is the revised net operating income if unit sales increase by 20%?

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 17%?

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 7%?

4. What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 20 cents per unit, and the number of units sold decreases by 7%?

Answer 1

Variable cost is the cost which changes with the change in output while fixed cost remains fixed and does not change with the change in output.

1.Revised Sales units = 37,000+20%*37,000 = 44,400 units

Calculation of net operating income:

Sales 44,400*6	266,400
Less: Variable Expenses 44,400*3	133,200
Contribution Margin	133,200
Less: Fixed Expenses	44,000
Net Operating income	$89,200

2.Revised Number of units = 37,000 + 37,000*17% = 43,290 units

Calculation of net operating income:

Sales 43,290*(6-1.30)	203,463
Less: Variable Expenses 43,290*3	129,870
Contribution Margin	73,593
Less: Fixed Expenses	44,000
Net Operating income	$29,593

3.Revised Number of units = 37,000*93% = 34,410 units

Calculation of net operating income:

Sales 34,410*(6+1.3)	251,193
Less: Variable Expenses 34,410*3	103,230
Contribution Margin	147,963
Less: Fixed Expenses (44,000+7,000)	51,000
Net Operating income	$96,963

4. Calculation of net operating income:

Sales 34,410*(6*1.2)	247,752
Less: Variable Expenses 34,410*3.20	110,112
Contribution Margin	137,640
Less: Fixed Expenses	44,000
Net Operating income	$93,640