Miller Company's most recent contribution format income statement is shown below:sales (20,000 units)300,000 15.00Variable expenses180,000 9.00CM 120,000 6.00Fixed expense 70,000Net operating income 50,000Required:Prepare a new contribution format income statement under each of the following conditions (consider each case independently):1. The number of units sold increases by 15%.2. The selling price decreases by $1.50 per unit, and the number of units sold increases by 25%.3. 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. The selling price increases by 12%, variable expenses increase by 60 cents per unit, and the number of units sold decreases by 10%.

Miller Company

New contribution format income statement under each of the following conditions (consider each case independently):

1. The number of units sold increases by 15%.

Sales (23,000 units)     $345,000 ( unit price $15.00)

Variable expenses       $207,000 ( unit cost $9.00)

Contribution Margin     $138,000 ( unit $6.00)

Fixed expense               $70,000

Net operating income $68,000

2. The selling price decreases by $1.50 per unit, and the number of units sold increases by 25%.

Sales (25,000 units)    $337,500 ( unit price $13.50)

Variable expenses      $225,000 ( unit cost $9.00)

Contribution Margin     $112,500 ( unit $4.50)

Fixed expense               $70,000

Net operating income $42,500

3. The selling price increases by $1.50 per unit, fixed expenses increase by $20,000, and the number of units sold decreases by 5%.

Sales (19,000 units)      $313,500 ( unit price $16.50)

Variable expenses        $171,000 ( unit cost $9.00)

Contribution Margin    $142,500 ( unit $7.50)

Fixed expense              $90,000 ($70,000 + 20,000)

Net operating income $52,500

4. The selling price increases by 12%, variable expenses increase by 60 cents per unit, and the number of units sold decreases by 10%.

Sales (18,000 units)    $302,400 ( unit price $16.80)

Variable expenses      $172,800 ( unit cost $9.60)

Contribution Margin   $129,600 ( unit $7.20)

Fixed expense              $70,000

Net operating income $59,600

Explanation:

a) Contribution Format Income Statement as per question:

Sales (20,000 units)   $300,000 ( unit price 15.00)

Variable expenses      $180,000 ( unit cost 9.00)

Contribution Margin   $120,000 ( unit 6.00)

Fixed expense              $70,000

Net operating income $50,000

b) The contribution format income statement can be prepared under different scenarios to account for different events as in the above.  They are estimates of future occurrences under scenario planning and analysis which can help management to make informed decisions, knowing the outcome of each situation.

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