Question

Required information Exercise 6-16 Working with a Segmented Income Statement; Break-Even Analysis (L06-4, LO6-5] [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 $ 450,000 100% 225,000 50% 225,000 50% 126,000 28% 99,000 22% 63,000 14% $ 36,000 8% Office Chicago Minneapolis $ 150,000 100% $ 300,000 100% 45,000 30% 180,000 60% 105,000 70% 120,000 40% 78,000 52% 48.000 16% $ 27,000 18% $ 72,000 24%

Answer 1

Break even point = Fixed cost/Contribution margin ratio

1A.

Breakeven point in dollar sales = (126,000+63,000)/50%

= 378,000

.

1B.

Chicago= 78,000/70%

= 111,429

Minneapolis = 48,000/40%

= 120,000

.

1C. Greater

.

Net operating income increase = Increase in sales* contribution margin ratio

= 75,000*40%

= 30,000