Question

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

Total Per Unit
Sales (33,000 units) $ 330,000 $ 10.00
Variable expenses 231,000 7.00
Contribution margin 99,000 $ 3.00
Fixed expenses 50,000
Net operating income $ 49,000
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 24%?

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 30 cents per unit, and the number of units sold decreases by 12%?

Answer 1

Part 1. What is the revised net operating income if unit sales increase by 13%?

Sales (33,000 units × ($10.00×1.13)) 372,900

Less Variable expenses ($7.00× 33,000) (231,000)

Contribution margin 141,900

Fixed expenses (50,000)

Net operating income 91,900

Part 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 24%?

Sales ((33,000 units×1.24) × ($10.00-$1.20)) 360,096

Less Variable expenses ($7.00× (33,000×1.24)) (286,440)

Contribution margin 73,656

Fixed expenses (50,000)

Net operating income 23,656

Part 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%?

Sales ((33,000 units×0.96) × ($10.00+$1.20)) 354,816

Less Variable expenses ($7.00× (33,000×0.96) (221,760)

Contribution margin 133,056

Fixed expenses (50,000 + 7,000) (57,000)

Net operating income 76,056

Part 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 12%?

Sales ((33,000 units×0.88)× ($10.00×1.10)) 319,440

Less Variable expenses (($7.00+$0.30)×(33,000×0.88)) (192,720)

Contribution margin 126,720

Fixed expenses (50,000)

Net operating income 76,720

Step-by-step explanation:

For each Part of this question you have to effect the line item with any adjustments mentioned.

So move line by line of the original Contribution Format Income Statement to identify if the new assumptions would change either amount of units or the price.