Question

Required information The following information applies to the questions displayed below.) Part 1 of 3 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: 10 points eBook Sales Variable expenses Contribution margin Traceable fixed expenses office segment margin Common fixed expenses not traceable to offices Net operating income Total Company $ 637,500 100.08 344,250 54.0% 293,250 46.0% 142,800 22.4% 150,450 23.68 102,000 16.08 $ 48,450 7.6% office Chicago Minneapolis $ 127,500 1008 $ 510,000 100% 38,250 30% 306,000 60% 89,250 70% 204,000 40% 66,300 52% 76,500 15% $ 22,950 18% $ 127,500 258 Print References 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? Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 1C Compute the companywide break-even point in dollar sales. (Round "CM ratio" to 2 decimal places and final answers to the nearest whole dollar amount.) Break-even point in dollar sales < Req1A Req1B >

Answer 1

1a)

CM ratio =contribution/sales =$293250/$637500 = 0.46

Break even point = fixed cost/CM ratio

                               =$(142800+102000)/.46

                                =$532174

Therefore breakeven point in dollar sales is $532174.

2.

Net operating income increases = $4845.

If sales of Minneapolis increases by $63750.

Total new sales = $63750 + $637500 = $701250

Net operating income =7.6% of $701250 = $53295

Net operating income increases by $4845.

3. Keeping fixed cost amount constant.

			Segments
	Total company		Chicago		Minneapolis
	amount ($)	%	amount ($)	%	amount ($)	%
sales	6,80,000	1%	170000	100%	5,10,000	100%
variable expense	3,57,000	53%	51000	30%	3,06,000	60%
contribution margin	3,23,000	48%	119000	70%	2,04,000	40%
traceable fixed expense	1,42,800	21%	66300	39%	76,500	15%
office segment margin	1,80,200	27%	52700	31%	1,27,500	25%
common fixed expenses not traceable	102000	15%
net operating income	78,200	12%