Question

Required Information SB Exercise 6-16 through Exercise 6-17 (Static) [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 Total Company $ 450,000 1eex 225,000 50% 225,000 sex 126,000 28% 99,000 22% 63,00 14% $ 36,eee 8% Office Chicago Minneapolis $ 158, eee 18ex $ 300,000 1eex 45,000 30% 180, eee 60% 105,000 70% 120, eee 4e 78, eee 52% 48, eee 16% $ 27,000 18% $ 72, cee 24% Exercise 6-17 (Static) Working with a Segmented Income Statement (LO6-4) Assume that Minneapolis' sales by major market are: Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Common fixed expenses not traceable to markets Office segment margin Minneapolis $ 300,eee 100% 189,880 128,888 4 33,880 11% 87.000 29% 15,880 5% $ 72,000 24% Market Medical Dental $ 200,000 100 $ 180, eee 100% 128,000 64% 52,800 52% 72,000 36% 48. Bee 48% 12.989 6X 21 Bee 21% $ 68,000 38% $ 27,800 The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $5,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,000 or increase sales in the Dental market by $35.000 Required: 1. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? 2. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Dental Market? 3. In which of the markets would you recommend that the company focus its advertising campaign? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? Company's profits by Required 2 >

Answer 1

Required 1 :
	Medical market
Increase in sales	40000
(*) Contribution margin ratio	36%
Increase in contribution margin	14400
(-) Cost of advertising campaign	5000
Increase (decrease) in profits	9400
Company's profits will increase by $9,400

Required 2 :
	Dental market
Increase in sales	35000
(*) Contribution margin ratio	48%
Increase in contribution margin	16800
(-) Cost of advertising campaign	5000
Increase (decrease) in profits	11800
Company's profits will increase by $11,800

Required 3 :

Answer : Dental market

Reason : The company should focus its advertising campaign in Dental market, because it will result in more increase in profit for the company than the Medical market.