Question

[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: 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 2 2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $101,250 per year? Assume no change in cost behavior patterns.

3. Assume that sales in Chicago increase by $67,500 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. 0.1234 should be entered as 12.3).)

Segments
	Total Company		Chicago		Minneapolis
	Amount	%	Amount	%	Amount	%
	0	0.0	0	0.0	0	0.0
	0	0.0	$0	0.0	$0	0.0
	$0	0.0

Answer 1

Following table is given in the question

SEGMENTS
	TOTAL COMPANY		CHICAGO		MINNEAPOLIS
	amount($)	%	amount($)	%	amount($)	%
Sales	1012500	100	202500	100	810000	100
variable expenses	546750	54	60750	30	486000	60
contribution margin	465750	46	141750	70	324000	40
traceable fixed expenses	226800	22.4	105300	52	121500	15
office segment margin	238950	23.6	36450	18	202500	25
common fixed expenses not traceable	162000	16
net operating income	76950	7.6

2) If Minneapolis increased its sales by $101,250 per year, assuming no change in cost behavior patterns. Following is the income statement

SEGMENTS
	TOTAL COMPANY		CHICAGO		MINNEAPOLIS
	amount($)	%	amount($)	%	amount($)	%
Sales	1113750	100%	202500	100%	911250	100%
variable expenses	607500	54.45%	60750	30%	546750	60%
contribution margin	506250	45.45%	141750	70%	364500	40%
traceable fixed expenses	241987.5	21.70%	105300	52%	136687.5	15%
office segment margin	264262.5	23.72%	36450	18%	227812.5	25%
common fixed expenses not traceable	178200	16%
net operating income	86062.5	7.70%

Company's net operating income increases by $9112.5

3) TABLE SHOWING CHANGES

SEGMENTS
	TOTAL COMPANY		CHICAGO		MINNEAPOLIS
	amount($)	%	amount($)	%	amount($)	%
Sales	1080000	100%	270000	100%	810000	100%
variable expenses	567000	52.50%	81000	30%	486000	60%
contribution margin	513000	47.50%	189000	70%	324000	40%
traceable fixed expenses	226800	21%	105300	39%	121500	15%
office segment margin	286200	26.50%	83700	31%	202500	25%
common fixed expenses not traceable	162000	15%
net operating income	124200	11.50%