Question

Required information [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 Office Total Company Chicago Minneapolis Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income $637,500 100.0% 54. 0% $127,500 100% $510,000 344,250 293,250 142,800 22.4% 150,450 23.6% $ 22,950 102,000 48,450 100% 60% 40% 15% 25% 306,000 204,000 52% 76,500 is 46.0% 88,250 30% 89,250 66,300 70% 18% $127,500 16.08 7.6% 2. By how much would the company's net operating income increase if Minneapolis increased its sales by $63,750 per year? Assume no change in cost behavior patterns Net operating income increase

Answer 1

Answer----Net operating income Increase $ 25,500

Increase in revenue	$ 63,750.00
Less: Variable cost (63750 x 60%)	$ 38,250.00
Net increase in income	$ 25,500.00

Net increase in income will be 40% of increase in sales revenue. Fixed cost will remain the same so it is not considered for calculations.

Since cost behaviour is same the Variable cost will remain 60% of sales and contribution margin will be 40%.The only cost increased will be variable cost that is shown above.