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Muzzillo Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.

\begin{tabular}{|l|l|}
\hline
Sales (4,000 units) & [tex]$\$[/tex] 320,000[tex]$ \\
\hline
Variable expenses & $[/tex]\[tex]$ 248,000$[/tex] \\
\hline
Contribution margin & [tex]$\$[/tex] 72,000[tex]$ \\
\hline
Fixed expenses & $[/tex]\[tex]$ 56,200$[/tex] \\
\hline
\end{tabular}

Required:
1. If the selling price increases by [tex]$\$[/tex] 5.00[tex]$ per unit and the sales volume decreases by 300 units, what would be the estimated net operating income?
2. If the variable cost per unit increases by $[/tex]\[tex]$ 6.00$[/tex], spending on advertising increases by [tex]$\$[/tex] 5,000$, and unit sales increase by 2,000 units, what would be the estimated net operating income?



Answer :

GinnyAnswer
Let's break down the solution for each part of the problem step by step.

### Given Information
- Sales (for 4,000 units): \[tex]$320,000 - Variable expenses: \$[/tex]248,000
- Contribution margin: \[tex]$72,000 - Fixed expenses: \$[/tex]56,200

### Original Derived Values
- Original selling price per unit:
[tex]\[ \text{Original selling price per unit} = \frac{\text{Total Sales}}{\text{Units Sold}} = \frac{320{,}000}{4{,}000} = \$80 \text{ per unit} \][/tex]
- Original variable cost per unit:
[tex]\[ \text{Original variable cost per unit} = \frac{\text{Total Variable Expenses}}{\text{Units Sold}} = \frac{248{,}000}{4{,}000} = \$62 \text{ per unit} \][/tex]

### Part 1: Selling Price Increases by \[tex]$5.00 per unit and Sales Volume Decreases by 300 Units - New selling price per unit: \[ \text{New selling price per unit} = \$[/tex]80 + \[tex]$5 = \$[/tex]85 \text{ per unit}
\]
- New sales volume:
[tex]\[ \text{New sales volume} = 4{,}000 - 300 = 3{,}700 \text{ units} \][/tex]
- New total sales:
[tex]\[ \text{New total sales} = 85 \times 3{,}700 = \$314{,}500 \][/tex]
- New total variable expenses:
[tex]\[ \text{New total variable expenses} = 62 \times 3{,}700 = \$229{,}400 \][/tex]
- New contribution margin:
[tex]\[ \text{New contribution margin} = \text{New total sales} - \text{New total variable expenses} = 314{,}500 - 229{,}400 = \$85{,}100 \][/tex]
- New net operating income:
[tex]\[ \text{New net operating income} = \text{New contribution margin} - \text{Fixed expenses} = 85{,}100 - 56{,}200 = \$28{,}900 \][/tex]

### Part 2: Variable Cost Increases by \[tex]$6.00 per Unit, Advertising Increases by \$[/tex]5,000, and Sales Volume Increases by 2,000 Units
- New variable cost per unit:
[tex]\[ \text{New variable cost per unit} = \$62 + \$6 = \$68 \text{ per unit} \][/tex]
- New sales volume:
[tex]\[ \text{New sales volume} = 4{,}000 + 2{,}000 = 6{,}000 \text{ units} \][/tex]
- New total variable expenses:
[tex]\[ \text{New total variable expenses} = 68 \times 6{,}000 = \$408{,}000 \][/tex]
- New total sales:
[tex]\[ \text{New total sales} = 80 \times 6{,}000 = \$480{,}000 \][/tex]
- New contribution margin:
[tex]\[ \text{New contribution margin} = \text{New total sales} - \text{New total variable expenses} = 480{,}000 - 408{,}000 = \$72{,}000 \][/tex]
- New fixed expenses:
[tex]\[ \text{New fixed expenses} = 56{,}200 + 5{,}000 = \$61{,}200 \][/tex]
- New net operating income:
[tex]\[ \text{New net operating income} = \text{New contribution margin} - \text{New fixed expenses} = 72{,}000 - 61{,}200 = \$10{,}800 \][/tex]

### Summary of Results
1. Estimated net operating income when selling price increases by \[tex]$5.00 per unit and sales volume decreases by 300 units: \[ \boxed{\$[/tex]28{,}900}
\]

2. Estimated net operating income when variable cost per unit increases by \[tex]$6.00, advertising increases by \$[/tex]5,000, and unit sales increase by 2,000 units:
[tex]\[ \boxed{\$10{,}800} \][/tex]

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