Question

Che 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 offices Net operating income Total Company $1,050,000 100.0% 567,000 54.0% 483,000 46.0% 235,200 22.4% 247,800 23.6% Office Chicago Minneapolis $210,000 188% $840,000 100% 63,800 30% 584,000 60% 147,089 70% 336,899 40% 109,200 52% 126,809 15% $ 37,800 18% $210,000 25% 168,000 79,880 16.0% 7.6% Exercise 6-16 Part 3 3. Assume that sales in Chicago increase by $70,000 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 de 0.1234

Answer 1

Solution

Income Statement
			Office
	Total Company		Chicago		Minneapolis
	Amount	%	Amount	%	Amount	%
Sales	$ 1,120,000	100.0%	$ 280,000	100.0%	$ 840,000	100.0%
Variable cost	$ 588,000	52.5%	$ 84,000	30.0%	$ 504,000	60.0%
Contribution margin	$ 532,000	47.5%	$ 196,000	70.0%	$ 336,000	40.0%
Traceable fixed cost	$ 235,200	21.0%	$ 109,200	39.0%	$ 126,000	15.0%
Office segment margin	$ 296,800	26.5%	$ 86,800	31.0%	$ 210,000	25.0%
Common fixed cost	$ 168,000	15.0%
Net Operating income	$ 128,800	11.5%

Traceable Fixed cost and common fixed remains same but the variable cost increase in proportion to increase in sales.