Question

Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company’s most recent year is given:

							Office
	Total Company						Chicago						Minneapolis
Sales	$	1,012,500		100.0	%		$	202,500		100	%		$	810,000		100	%
Variable expenses		546,750		54.0	%			60,750		30	%			486,000		60	%
Contribution margin		465,750		46.0	%			141,750		70	%			324,000		40	%
Traceable fixed expenses		226,800		22.4	%			105,300		52	%			121,500		15	%
Office segment margin		238,950		23.6	%		$	36,450		18	%		$	202,500		25	%
Common fixed expenses not traceable to offices		162,000		16.0	%
Net operating income	$	76,950		7.6	%

Exercise 6-16 Part 1

Required:

1-a. Compute the companywide break-even point in dollar sales.

1-b. Compute the break-even point for the Chicago office and for the Minneapolis office.

1-c. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points?

Answer 1

ica) company wide break even pointi pouar sales for company to Break Even Traceable fixed common expenses expenses overall cm ratio. $226,800 + 162,000 0.46. $845,217 - expenses To Break even point Chicago Office segment fixed / segment ratio $ 105,300/0.10 HO $150, 429.) rounded off Minneapolis $121,500/0.40 = ($303,750 1(c) The sum of Break eve he sum of Break even point is less than the company wide Break even point because the company wide break even point takes into account common fixed expenses that do not affect the segment break- even calculations.

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