Question

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	$	412,500		100.0	%		$	82,500		100	%		$	330,000		100	%
Variable expenses		222,750		54.0	%			24,750		30	%			198,000		60	%
Contribution margin		189,750		46.0	%			57,750		70	%			132,000		40	%
Traceable fixed expenses		92,400		22.4	%			42,900		52	%			49,500		15	%
Office segment margin		97,350		23.6	%		$	14,850		18	%		$	82,500		25	%
Common fixed expenses not traceable to offices		66,000		16.0	%
Net operating income	$	31,350		7.6	%

3. Assume that sales in Chicago increase by $27,500 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).

Total Company Amount % Chicago Amount Segments Minneapolis Amount % % 0 0.0 00. 00 0.0 Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to segments Net operating income 0 0.0 0.0 $ $ 0.0 $ $ 0 0.0

Answer 1

segmented income statement office total company 412500 222750 189750 92400 100.0% 54.0% 46.0% 22.4% Chicago 82500 100% 24750 30% 57750 70% 42900 52% minneapolis 330000 100% 198000 60% 132000 40% 49500 15% sales variable costs contribution margin traceable fixed costs product line segment margin (loss) common allocated fixed costs net operating income (loss) 14850 18% 82500 25% 97350 66000 31350 23.6% 16.0% 7.6% ANSWER after increasing sales of chicago by 27500 segmented income statement office total company Chicago minneapolis minnes sales 440000 100.0% 110000 100% 330000 variable costs 231000 52.5% 33000 30%) 198000 contribution margin 209000 47.5% 77000 70% 132000 traceable fixed costs 92400 21.0% 42900 39% 49500 office segment margin 116600 26.5% 34100 31% 82500 common fixed costs not traceable to segments 66000 15.0% net operating income (loss) 50600 11.5% 100% 60% 40% 15% 25%