Question

Segments
	Total Company		Chicago		Minneapolis
	Amount	%	Amount	%	Amount	%
	0	0.0	0	0.0	0	0.0
	0	0.0	$0	0.0	$0	0.0
	$0	0.0

Exercise 6-16 Working with a Segmented Income Statement; Break-Even Analysis [LO6-4, LO6-5] [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: Office Total Company Chicago Minneapolis Sales $ 1,012,500 100.0 % $ 202,500 100 % $ 810,000 100 % Variable expenses 546,750 54.0 % 60,750 30 % 486,000 60 % Contribution margin 465,750 46.0 % 141,750 70 % 324,000 40 % Traceable fixed expenses 226,800 22.4 % 105,300 52 % 121,500 15 % Office segment margin 238,950 23.6 % $ 36,450 18 % $ 202,500 25 % Common fixed expenses not traceable to offices 162,000 16.0 % Net operating income $ 76,950 7.6 % Exercise 6-16 Part 3 3. Assume that sales in Chicago increase by $67,500 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).)

Answer 1

minneapolis 810000 100% 486000 60% 324000 40% 121500 15% 202500 25% segmented income statement office total company Chicago sales 1012500 100.0% 202500 100% variable costs 546750 54.0% 60750 30% contribution margin 465750 46.0% 141750 70% traceable fixed costs 226800 22.4% 105300 52% office segment margin 238950 23.6% 36450 18% common allocated fixed costs 162000 16.0% net operating income (loss) 76950 7.6% ANSWER after increasing sales of chicago by 67500 segmented income statement office total company Chicago sales 1080000 100.0% 270000 100.0% variable costs 567000 52.5% 81000 30.0% contribution margin 513000 47.5% 189000 70.0% traceable fixed costs 226800 21.0% 105300 39.0% office segment margin 286200 26.5% 83700 31.0% common fixed costs not traceable to segments 162000 15.0% net operating income (loss) 124200 11.5% minneapolis 810000 486000 324000 121500 202500 100% 60% 40% 15% 25%

since the variable cost per unit remains constant