Question

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		49,000
Net operating income	$	62,000

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 $1.10 per unit and the number of units sold increases by 24%?

3. What is the revised net operating income if the selling price increases by $1.10 per unit, fixed expenses increase by $8,000, and the number of units sold decreases by 3%?

4. What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 6%?

Answer 1

1.

	Total	Per unit
Sales (37,000 + 14%) = 42,180 A	253,080	6
Variable Expenses B	126,540	3
Contribution Margin (A-B) C	126,540	3
Fixed expenses D	49,000
Revised net operating income (C-D)	77,540

2.

	Total	Per unit
Sales (37,000 + 24%) = 45,880 A	224,812	4.9
Variable Expenses B	137,640	3
Contribution Margin (A-B) C	87,172	1.9
Fixed expenses D	49,000
Revised net operating income (C-D)	38,172

3.

	Total	Per unit
Sales (37,000 - 3%) = 35,890 A	254,819	7.1
Variable Expenses B	107,670	3
Contribution Margin (A-B) C	147,149	4.1
Fixed expenses (49,000 + 8,000) D	57,000
Revised net operating income (C-D)	90,149

4.

	Total	Per unit
Sales (37,000 - 6%) = 34,780 A	250,416	(6+20%) 7.2
Variable Expenses B	135,642	(3+30%) 3.9
Contribution Margin (A-B) C	114,774	3.3
Fixed expenses D	49,000
Revised net operating income (C-D)	65,774