Question

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

	Total			Per Unit
Sales (42,000 units)	$	294,000		$	7.00
Variable expenses		168,000			4.00
Contribution margin		126,000		$	3.00
Fixed expenses		40,000
Net operating income	$	86,000

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 $1.20 per unit and the number of units sold increases by 20%?

3. What is the revised net operating income if the selling price increases by $1.20 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 9%?

Answer 1

1.Revised Unit Sales = 42,000*1.14 = 47,880

Contribution Margin = 47,880*3 = $143,640

Less: Fixed Expenses = $40,000

Revised Net Operating Income = $103,640

2.Selling Price per Unit = 7-1.20 = $5.8

Number of units = 42,000*1.2 = 50,400

Contribution Margin per Unit = 5.8-4 = $1.8

Contribution Margin = 1.8*50,400 = $90,720

Fixed Expenses: 40,000

Revised Net Operating Income = $50,720

3.Revised Selling Price = $7+$1.20 = $8.20

Number of units sold = 42,000*93% = 39,060

Contribution margin per unit = 8.20-4 = $4.20

Contribution Margin = 39,060*4.20 = $164,052

Less: Fixed Expenses = $40,000+7,000 = 47,000

Revised Net Operating Income = $117,052

4.Revised Selling Price = $7*1.2 = $8.40

Variable cost per unit = $4 + $0.20 = $4.20

Number of units sold = 42,000*91% = 38,220

Contribution margin per unit = 8.40-4.20 = $4.20

Contribution Margin = 38,220*4.20 = $160,524

Less: Fixed Expenses = $40,000

Revised Net Operating Income = $120,524