Question

A)

Required information Exercise 6-16 Working with a Segmented Income Statement; Break-Even Analysis (L06-4, 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: Sales Variable expenses Contribution margin Traceable fixed expenses office segment margin Common fixed expenses not traceable to offices Net operating income 601 Total Company $1,012,500 100.00 546,750 54.00 465,750 46.00 226,800 22.45 238,950 23.61 162,000 16.00 $ 76,950 7.60 office Chicago Minneapolis $ 202,500 1000 $ 810,000 1001 60.750 300 486,000 141,750 700 324,000 408 105,300 520 121,500 150 $ 36,450 188 $ 202,500 250 Exercise 6-16 Part 2 2. By how much would the company's net operating income increase if Minneapolis increased its sales by $101,250 per year? Assume no change in cost behavior patterns. Net operating income increase

B)

Answer 1

Ans 2 Increase in sales in Minneapolis office Contribution margin will increase by ($101250 x 40%] $1,01,250 $40,500 Since there is no change in cost behaviour, the Net operating income will increase by $40500 Offices Particulars Total Company Chicago Minneapolis Sales $11,13,750 100.0% $2,02,500 100.0% $9,11,250 100.0% Variable Expense $6,07,500 54.5% $60,750 30.0% $5,46,750 60.0% Contribution Margin $5,06,250 45.5% $1,41,750 70.0% $3,64,500 40.0% Traceable Fixed Cost $2,26,800 20.4% $1,05,300 52.0% $1,21,500 13.3% Office Segment Margin $2,79,450 25.1% $36,450 18.0% $2,43,000 26.7% Common Fixed expense not traceable to offices $1,62,000 14.5% Net Operating Income $1,17,450 10.5% Net Operating income after increase in Minneapolis Sales Less: Net Operating income before increase Net operating income increases by $1,17,450 $76,950 $40,500 Ans 3 b Particulars Sales Variable Expense Contribution Margin Traceable Fixed Cost Office Segment Margin Common Fixed expense not traceable to offices Net Operating Income Offices Total Company Chicago Minneapolis $10,80,000 100.0% $2,70,000 100.0% $8,10,000 100.0% $5,67,000 52.5% $81,000 30.0% $4,86,000 60.0% $5,13,000 47.5% $1,89,000 70.0% $3,24,000 40.0% $2,26,800 21.0% $1,05,300 39.0% $1,21,500 15.0% $2,86,200 26.5% $83,700 31.0% $2,02,500 25.0% $1,62,000 15.0% $1,24,200 11.5%