Question

Exercise 7-17 Working with a Segmented Income Statement (LO7-4) 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: Assume that Minneapolis' sales by major market are: Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Common fixed expenses not traceable to markets Office segment margin Minneapolis $630,000 100% 378,000 604 252,000 40% 75,600 124 176,400 28% Market Medical Dental $420,000 100% $210,000 100% 273,000 65% 105,680 58% 147,000 35% 185,000 50% 21,000 5% 54,600 26% $126,000 30% $ 50,400 24% 18,900 $157,500 25% The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $8,400. Marketing studies indicate that such a campaign would increase sales in the Medical market by $73,500 or increase sales in the Dental market by $63,000. Required: 1. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? < Prev 4 of 5 !!! Next >

Answer 1

1
Increase in sales	73500
X Contribution margin ratio	35%
Increase in Contribution margin	25725
Less: Advertising expense	8400
Company's profits increases by	17325
2
Increase in sales	63000
X Contribution margin ratio	50%
Increase in Contribution margin	31500
Less: Advertising expense	8400
Company's profits increases by	23100
3
Dental market, as profit increase is higher.