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[The following information applies to the questions displayed below.]    Raner, Harris & Chan is a...

[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 $ 900,000 100.0 % $ 180,000 100 % $ 720,000 100 %
Variable expenses 486,000 54.0 % 54,000 30 % 432,000 60 %
Contribution margin 414,000 46.0 % 126,000 70 % 288,000 40 %
Traceable fixed expenses 201,600 22.4 % 93,600 52 % 108,000 15 %
Office segment margin 212,400 23.6 % $ 32,400 18 % $ 180,000 25 %
Common fixed expenses not traceable to offices 144,000 16.0 %
Net operating income $ 68,400 7.6 %

3. Assume that sales in Chicago increase by $60,000 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 (i.e. 0.1234 should be entered as 12.3).)

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Answer #1

Income Statement

Office

Total Company

Chicago

Minneapolis

Amount

%

Amount

%

Amount

%

Sales

$    9,60,000.00

100.0%

$   2,40,000.00

100.0%

$         7,20,000.00

100.0%

Variable cost

$    5,04,000.00

52.5%

$       72,000.00

30.0%

$         4,32,000.00

60.0%

Contribution margin

$    4,56,000.00

47.5%

$   1,68,000.00

70.0%

$         2,88,000.00

40.0%

Traceable fixed cost

$    2,01,600.00

21.0%

$       93,600.00

39.0%

$         1,08,000.00

15.0%

Office segment margin

$    2,54,400.00

26.5%

$       74,400.00

31.0%

$         1,80,000.00

25.0%

Common fixed cost

$    1,44,000.00

15.0%

Net Operating income

$    1,10,400.00

11.5%

Increase in sales of $60000 will also increase variable cost by $18000 (60000 x 30%)

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