Question

Required information Exercise 7-16 Working with a Segmented Income Statement: Break-Even Analysis (L07-4, L07-5) 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 $ 712,500 100.01 384,750 54.01 327.750 46.08 159,600 22.41 168,150 23.61 114.000 16.00 $ 54.150 2.64 Office Chicago Minneapolis $ 142,500 1001 $570,000 1001 42,750 300 42.000 605 99,750 701 2 28.000 74.100 521 85,500 151 $ 25,650 181 142.500 251 Exercise 7-16 Part 1 Required: 1- Compute the companywide break-even point in dollar sales 1b. Compute the break-even point for the Chicago office and for the Minneapolis office 1 is the companywide break-even point greater than, less than or equal to the sum of the Chicago and Minneapolis break even

Answer 1

1a
Break-even point in dollar sales	594783	=(159600+114000)/46%
1b
Chicago office	105857	=74100/70%
Minneapolis office	213750	=85500/40%
1c
Greater than
2
Increase in sales	71250
X CM ratio	40%
Net operating income increase	28500
3
	Total company		Chicago		Minneapolis
	Amount	%	Amount	%	Amount	%
Sales	760000	100.0%	190000	100.0%	570000	100.0%
Variable expenses	399000	52.5%	57000	30.0%	342000	60.0%
Contribution margin	361000	47.5%	133000	70.0%	228000	40.0%
Traceable fixed expenses	159600	21.0%	74100	39.0%	85500	15.0%
Office segment margin	201400	26.5%	58900	31.0%	142500	25.0%
Common fixed expenses not traceable	114000	15.0%
Net operating income	87400	11.5%