Question

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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	%

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).) 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

Answer 1

Answer:

New Segmented Income Statement after increasing sales in chicago by $67500
Particulars	Total Company	Chicago	Minneapolis
	Amount	%	Amount	%	Amount	%
Sales	1080000	100%	270000	100%	810000	100%
Variable cost	567000	52.5%	81000	30%	486000	60%
Contribution Margin	513000	47.5%	189000	70%	324000	40%
Traceable Fixed Expenses	226800	21%	105300	39%	121500	15%
Office Segment Margin	286200	26.5%	83700	31%	202500	25%
Common Fixed expenses not traceable to offices	162000	15%
Net Operating Income (loss)	124200	11.5%

Traceable fixed cost and common fixed cost remains the same but the variable cost increases in proportion to the increase in sales.