Question

Check my work Miller Company's contribution format income statement for the most recent month is shown below. Sales (31,eee units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 279,00 186.000 93,000 49,000 $ 44, eee Per Unit $ 9.ee 6.ee $ 3.ee 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 $1.30 per unit and the number of units sold increases by 22%? 3. What is the revised net operating income if the selling price increases by $1.30 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 10%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 8%?

Answer 1

Solution Selling price per unit Variable expenses per unit Contribution Margin per unit Fixed expenses Sales volume (units) $9.00 $6.00 $3.00 $49,000 31,000 Required 1. Increase in unit sales Increase in sales volume (31,000 x 13%) Revised sales volume (31,000 +4,030) 13% 4,030 35,030 Computation of Revised net operating income Revised Income Statement Sales ($9 x 35,030 units) Variable expenses ($6 x 35,030 units) Contribution Margin Fixed expenses Net operating income $315,270 $210,180 $105,090 $49,000 $56,090 Revised net operating income $56,090 Required 2. Decrease in selling price per unit Revised selling price per unit ($9.00 - $1.30) $1.30 $7.70 Increase in unit sales Increase in sales volume (31,000 x 13%) Revised sales volume (31,000 +6,820) 22% 6,820 37,820 Revised Income Statement Sales ($ 7.70 x 37,820 units) Variable expenses ($6 x 37,820 units) Contribution Margin Fixed expenses Net operating income $291,214 $226,920 $64,294 $49,000 $15,294 Revised net operating income $15,294

Required 3. Increase in selling price per unit Revised selling price per unit ($9.00 + $1.30) $1.30 $10.30 Increase in fixed expenses Revised fixed expenses ($49,000 + $8,000) $8,000 $57,000 Decrease in unit sales Decrease in sales volume (31,000 x 3%) Revised sales volume (31,000 - 930) 3% 930 30,070 Revised Income Statement Sales ($10.30 x 30,070 units) Variable expenses ($6 x 30,070 units) Contribution Margin Fixed expenses Net operating income $309,721 $180,420 $129,301 $57,000 $72,301 Revised net operating income $72,301 Required 4. Increase in selling price per unit ($9 x 10%) Revised selling price per unit ($9.00 + $0.90) $0.90 $9.90 $0.60 Increase in Variable expense per unit ($6 x 10%) Revised variable expense per unit ($6 + $0.60) $6.60 Decrease in unit sales Decrease in sales volume (31,000 x 8%) Revised sales volume (31,000 -2,480) 8% 2,480 28,520 Revised Income Statement Sales ($9.90 x 28,520 units) Variable expenses ($6.60 x 28,520 units) Contribution Margin Fixed expenses Net operating income $282,348 $188,232 $94,116 $49,000 $45,116 Revised net operating income $45,116 (1) (2) (3) Revised net operating income Revised net operating income Revised net operating income Revised net operating income $56,090 $15,294 $72,301 $45,116