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 below:

  

               

Office

    Total Company   Chicago   Minneapolis

Sales   $   450,000     100   %   $   150,000     100   %   $   300,000     100   %

Variable expenses      225,000     50   %      45,000     30   %      180,000     60   %

   

Contribution margin      225,000     50   %      105,000     70   %      120,000     40   %

Traceable fixed expenses      126,000     28   %      78,000     52   %      48,000     16   %

   

Office segment margin      99,000     22   %   $   27,000     18   %   $   72,000     24   %

               

Common fixed expenses not

traceable to offices      63,000     14   %                          

   

                        

Net operating income   $   36,000     8   %                          

   

Required:

1-a.	Compute the companywide break-even point in dollar sales.(Round "CM ratio" to 2 decimal places.)

          

1-b.	Compute the break-even point for the Chicago office and for the Minneapolis office. (Round "CM ratio" to 2 decimal places and final answers to the nearest whole dollar amount.)

          

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?
	Greater than less than equal to

          

3.

2.	By how much would the company's net operating income increase if Minneapolis increased its sales by $75,000 per year? Assume no change in cost behavior patterns.

         

4.

3.	Refer to the original data. Assume that sales in Chicago increase by $50,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs.

  

a.	Prepare a new segmented income statement for the company.(Round your percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3))

          

Answer 1