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	$	487,500		100.0	%		$	97,500		100	%		$	390,000		100	%
Variable expenses		263,250		54.0	%			29,250		30	%			234,000		60	%
Contribution margin		224,250		46.0	%			68,250		70	%			156,000		40	%
Traceable fixed expenses		109,200		22.4	%			50,700		52	%			58,500		15	%
Office segment margin		115,050		23.6	%		$	17,550		18	%		$	97,500		25	%
Common fixed expenses not traceable to offices		78,000		16.0	%
Net operating income	$	37,050		7.6	%

Exercise 4-16 (Algo) Part 1

Required:

1-a. Compute the companywide break-even point in dollar sales.

1-b. Compute the break-even point for the Chicago office and for the Minneapolis office.

1-c. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points?

Answer 1

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Aw:06) Dollar Sales for company to Break evren's = Traceable frixed Expenses t common foveol En Denses .. Overall em Ratio $109, 200 + $78000 0.46 = $ 406,956-5 OR $ 406,957 (6.) The Break even point for the chicago Office & Dollay Sales for a sogmerit to Break even a Segmeut Foaceable fixed Expense ... Segment com Ratio 3 $ 50,700 0.70 = $ 72,428.57 OR $72,489. Break even point for the minneapolis office & Dollar Sales for a segment to Break even - Segmrut Daceable fe ded Expense Segment cm Ratio = $58,500 - - 0.40 - $146, 250] (c) The sum of the Segment break even points is less than the company wide beczk-even point because the company wide breek even point takes into account Common fixed Expenses that do not affect the segrneut break-wen Cabulationd.