Question

Miller Company's contribution format income statement for the most recent month is shown below: Per Unit Total $369,000 $9.00 Sales (41,000 units) Variable expenses 246,000 6.00 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 15%? 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 15%? 3. What is the revised net operating income if the selling price increases by $1.10 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 10%, variable expenses increase by 40 cents per unit, and the number of units sold decreases by 14%? 1. Net operating income 2. Net operating income 3. Net operating income 4. Net operating income

Answer 1

If unit sales increase by 15%:

Revised unit sales = 41,000 units + (15% of 41,000) = 41,000 + 6,150 = 47,150 units

Revised net operating income = (Revised unit sales × Contribution margin) - Fixed expenses

= (47,150 units × $3.00) - $42,000

= $141,450 - $42,000

= $99,450

Therefore, the revised net operating income is $99,450.

If the selling price decreases by $1.10 per unit and the number of units sold increases by 15%:

Revised selling price per unit = $9.00 - $1.10 = $7.90

Revised unit sales = 41,000 units + (15% of 41,000) = 41,000 + 6,150 = 47,150 units

Revised net operating income = (Revised unit sales × (Revised selling price - Variable expenses)) - Fixed expenses

= (47,150 units × ($7.90 - $6.00)) - $42,000

= (47,150 units × $1.90) - $42,000

= $89,685 - $42,000

= $47,685

Therefore, the revised net operating income is $47,685.

If the selling price increases by $1.10 per unit, fixed expenses increase by $7,000, and the number of units sold decreases by 7%:

Revised selling price per unit = $9.00 + $1.10 = $10.10

Revised fixed expenses = $42,000 + $7,000 = $49,000

Revised unit sales = 41,000 units - (7% of 41,000) = 41,000 - 2,870 = 38,130 units

Revised net operating income = (Revised unit sales × (Revised selling price - Variable expenses)) - Revised fixed expenses

= (38,130 units × ($10.10 - $6.00)) - $49,000

= (38,130 units × $4.10) - $49,000

= $156,333 - $49,000

= $107,333

Therefore, the revised net operating income is $107,333.

If the selling price per unit increases by 10%, variable expenses increase by 40 cents per unit, and the number of units sold decreases by 14%:

Revised selling price per unit = $9.00 + (10% of $9.00) = $9.90

Revised variable expenses per unit = $6.00 + $0.40 = $6.40

Revised unit sales = 41,000 units - (14% of 41,000) = 41,000 - 5,740 = 35,260 units

Revised net operating income = (Revised unit sales × (Revised selling price - Revised variable expenses)) - Fixed expenses

= (35,260 units × ($9.90 - $6.40)) - $42,000

= (35,260 units × $3.50) - $42,000

= $123,410 - $42,000

= $81,410

Therefore, the revised net operating income is $81,410.