Question

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

	Total			Per Unit
Sales (41,000 units)	$	287,000		$	7.00
Variable expenses		164,000			4.00
Contribution margin		123,000		$	3.00
Fixed expenses		42,000
Net operating income	$	81,000

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 $1.40 per unit and the number of units sold increases by 18%?

3. What is the revised net operating income if the selling price increases by $1.40 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 20 cents per unit, and the number of units sold decreases by 6%?

	1. Net operating income 2. Net operating income 3. Net operating income 4. Net operating income

Answer 1

Answer 1.

Unit Sales = 41,000 + 14% * 41,000
Unit Sales = 46,740

Answer 2.

Selling Price per unit = $7.00 - $1.40
Selling Price per unit = $5.60

Unit Sales = 41,000 + 18% * 41,000
Unit Sales = 48,380

Answer 3.

Selling Price per unit = $7.00 + $1.40
Selling Price per unit = $8.40

Fixed Expenses = $42,000 + $8,000
Fixed Expenses = $50,000

Unit Sales = 41,000 - 4% * 41,000
Unit Sales = 39,360

Answer 4.

Selling Price per unit = $7.00 + 20% * $7.00
Selling Price per unit = $8.40

Variable Expenses per unit = $4.00 + $0.20
Variable Expenses per unit = $4.20

Unit Sales = 41,000 - 6% * 41,000
Unit Sales = 38,540