Question

Three Part Question

Required information (The following information applies to the questions displayed below.) 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 Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income Total Company $ 525,000 100.0% 283,500 54.0% 241,500 46.0% 117,600 22.4% 123,900 23.6% 84,000 16.0% $ 39,900 7.6% Office Chicago Minneapolis $ 105,000 100% $ 420,000 100% 31,500 30% 252,000 60% 73,500 70% 168,000 40% 54,600 52% 63,000 15% $ 18,900 18% $ 105,000 25%

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Part 1a) Company wide break even sale = Total fixed cost / contribution margin of company as whole = (84000+117600)/46% = $ 438261 Thus the correct answer is $ 438261 Part 1b)Chicago office break even sales = fixed cost of chicago division / contribution ratio of chicago = 54600/70% = $ 78000 Minnepolis office break even sales = fixed cost of minnepolis division / contribution ratio of minnepolis = 63000/40% = $ 157500 Thus the final answer Chicago office Minneapolis office 78000 157500

Part 1c) The correct answer is Greater than Explanation Since the break even point of overall company aslo includes common fixed expenses, so it is greater than sum of the two divisions break even point Part 2) Net operating income will increase by = increase in minneapolis sales * contribution margin of minneapolis = 52500*40% = $ 21000 Thus the correct answer is $ 21000

3 Part 3) t in US 7 Sales Variable expenses Segment Total Company Chicago Minneapolis Amount % Amount Amount % 560000 100 140000 100 420000 100 (105000+35000) 2940001 52.5 42000 30 252000 60 (140000*30%) 266000 47.5 98000 70 168000 117600 21 54600 39 63000 (54600/140000*100) 148400 26.5 43400 31. 105000 84000 15 64400 11.5 1 Contribution Margin 2 Traceable Fixed expenses 15 4 Office segment margin 5 Common fixed expenses not traceable to office 5 Net operating income 3 Percentage formula for all the percentage figures = respective amount / repective sales figure*100