Question

1) 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: Sales Total Company Chicago $975.000 100% $ 195,00 10 0 0 526,500 54.0% 58.500 30% Minneapolis 780.00 10 0 0 468.00 60% Variable expenses Contribution margin 312.00 450 136,50 448.500 70% 40% 0 117,000 40% 15% Traceable forced expenses 218.400 22.4% 10140 62% 230,100 23.6% 35 Office segment margin Common fixed expenses not traceable to offices Net operating income 156.000 16.0% 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

Answer to Question 1:

Answer 1-a:

Companywide contribution margin ratio = 46%

Companywide fixed expenses = Traceable fixed expenses + Common fixed expenses
Companywide fixed expenses = $218,400 + $156,000
Companywide fixed expenses = $374,400

Companywide breakeven point in dollar sales = Companywide fixed expenses / Companywide contribution margin ratio
Companywide breakeven point in dollar sales = $374,400 / 0.46
Companywide breakeven point in dollar sales = $813,913

Answer 1-b.

Chicago Office:

Breakeven point in dollar sales = Traceable fixed expenses / Contribution margin ratio
Breakeven point in dollar sales = $101,400 / 0.70
Breakeven point in dollar sales = $144,857

Minneapolis Office:

Breakeven point in dollar sales = Traceable fixed expenses / Contribution margin ratio
Breakeven point in dollar sales = $117,000 / 0.40
Breakeven point in dollar sales = $292,500

Answer 1-c.

Sum of breakeven point of both offices = Breakeven point of Chicago Office + Breakeven point of Minneapolis Office
Sum of breakeven point of both offices = $144,857 + $292,500
Sum of breakeven point of both offices = $437,357

The companywide breakeven point in greater than the sum of breakeven point of Chicago and Minneapolis Office.