Question

Miller Company's contribution format Income statement for the most recent month is shown below. 

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 $150 per unit and the number of units sold increases by 25%?

 3. What is the revised net operating income if the selling price Increases by $1.50 per unit, fixed expenses increase by $20,000, and the number of units sold decreases by 5%?

 4. What is the revised net operating income if the selling price per unit increases by 12%, variable expenses increase by 60 cents per unit, and the number of units sold decreases by 10%? 

Answer 1

1.
Revised unit sales = Current unit sales * ( 1 + Increase % ) = 20000 * ( 1 + 15% )	23000

Sales ( 23000 * 15 )	345000
Variable expenses ( 23000 * 9 )	207000
Contribution margin	138000
Fixed expenses	70000
Net operating income	68000

2.
Revised selling price = Current selling price - Decrease = 15 - 1.50	13.50
Revised unit sales = Current unit sales * ( 1 + Increase % ) = 20000 * ( 1 + 25% )	25000

Sales ( 25000 * 13.50 )	337500
Variable expenses ( 25000 * 9 )	225000
Contribution margin	112500
Fixed expenses	70000
Net operating income	42500

3.
Revised selling price = Current selling price + Increase = 15 + 1.50	16.50
Revised unit sales = Current unit sales * ( 1 - decrease % ) = 20000 * ( 1 - 5% )	19000
Revised fixed expense = Current fixed expense + Increase = 70000 + 20000	90000

Sales ( 19000 * 16.50 )	313500
Variable expenses ( 19000 * 9 )	171000
Contribution margin	142500
Fixed expenses	90000
Net operating income	52500

4.
Revised selling price = Current selling price * ( 1 + Increase % ) = 15 * ( 1 + 12% )	16.80
Revised variable expense = Current variable expense + Increase = 9 + 0.60	9.60
Revised unit sales = Current unit sales * ( 1 - decrease % ) = 20000 * ( 1 - 10% )	18000

Sales ( 18000 * 16.80 )	302400
Variable expenses ( 18000 * 9.60 )	172800
Contribution margin	129600
Fixed expenses	70000
Net operating income	59600