Question

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

	Total			Per Unit
Sales (37,000 units)	$	185,000		$	5.00
Variable expenses		74,000			2.00
Contribution margin		111,000		$	3.00
Fixed expenses		44,000
Net operating income	$	67,000

Miller Company’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (37,000 units) $ 185,000 $ 5.00 Variable expenses 74,000 2.00 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 13%?

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 18%?

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 4%?

4. What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 5%?

Answer 1

1.

Miller Company
Contribution Income Statement
	Total	Per Unit
Sales (41810 units)	209050	$       5.00
Variable expenses	83620	2.00
Contribution margin	125430	$       3.00
Fixed expenses	44000
Net operating income	81430

Number of units sold = 37000 x 1.13 = 41810

2.

Miller Company
Contribution Income Statement
	Total	Per Unit
Sales (43660 units)	165908	$       3.80
Variable expenses	87320	2.00
Contribution margin	78588	$       1.80
Fixed expenses	44000
Net operating income	34588

Selling price = $5.00 - $1.20 = $3.80

Number of units sold = 37000 x 1.18 = 43660

3.

Miller Company
Contribution Income Statement
	Total	Per Unit
Sales (35520 units)	220224	$       6.20
Variable expenses	71040	2.00
Contribution margin	149184	$       4.20
Fixed expenses	51000
Net operating income	98184

Selling price = $5.00 + $1.20 = $6.20

Fixed expenses = $44000 + $7000 = $51000

Number of units sold = 37000 x 0.96 = 35520

4.

Miller Company
Contribution Income Statement
	Total	Per Unit
Sales (35150 units)	193325	$       5.50
Variable expenses	73815	2.10
Contribution margin	119510	$       3.40
Fixed expenses	44000
Net operating income	75510

Selling price = $5.00 x 1.10 = $5.50

Variable expenses = $2.00 + $0.10 = $2.10

Number of units sold = 37000 x 0.95 = 35150