Question

Exercise 5-13 Changes in Selling Price, Sales Volume, Variable Cost per Unit, and Total Fixed Costs [LO5-1, LO5-4] Miller Company’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (31,000 units) $ 248,000 $ 8.00 Variable expenses 155,000 5.00 Contribution margin 93,000 $ 3.00 Fixed expenses 42,000 Net operating income $ 51,000 Required: (Consider each case independently): 1. What is the revised net operating income if unit sales increase by 10%? 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 $9,000, 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 10%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 10%?

Answer 1

1.unit sales increase by 10%

sales (31,000 units +10%) * $8.00=>(34,100*$8.00)	$272,800
less: variable cost (34,100 units *$5)	(170,500)
contribution margin (34,100 *$3)	$102,300
less:fixed costs	(42,000)
net income	$60,300

2.units increase by 20% =>31,000 + 20% =>37,200.

price increases by $1.20 => $8.00- $1.20=>$6.80

sales (37,200 * $6.80)	$252,960
less: variable cost ($5.00*37,200)	(186,000)
contribution ($1.80* 37,200)	66,960
less: fixed cost	42,000
net income	24,960

3. number of units sold decrease by 7% =>31,000 - 7% =>28,830.

price increases by $1.20 =>$8.00 +$1.20 =>$9.20.

fixed expenses increase by $9000 =>$42,000 + 9000 =>$51,000.

sales (28,830*$9.20)	$265,236
less:variable cost (28,830*$5.00)	(144,150)
contribution (4.20*28,830)	$121,086
less:fixed cost	51,000
net income	70,086

4.selling price increases by 10% =>$8.00 + 10% =>$8.80.

variable expense = $5.00+0.30 =>$5.30.

number of units =31,000 - 10% =>27,900

sales (27,900 * $8.80)	$245,520
less:variable cost (27,900 *$5.30)	(147,870)
contribution margin	97,650
less; fixed cost	(42,000)
net income	55,650