Question

2. Prepare an incohne s 6-16 Working with a Segmented Income Statement; Break-Even Statement; Break-Even Analysis LO Raner, Harris & Chan is a consulting firm that specializes in information syMems for dental clinics. The firm has two offices-one in Chicago and one in Minneapolis. Th fies the direct costs of consulting jobs as variable costs. A contribution format segmen em 1 % 3. In which of h campaign? statement for the company's most recent year is given: 4. In Exercise 6- the $48,000 in Office Sales Total Company Chicago Variable expenses. Contribution margin $450,000 100% $150,000 100% $300,000 : 225,000 50% 45,000 30% -180.000 60 PROBLEM 6-18 LO6-2 Haas Compar the company Traceable fixed expenses 225,000 50% 105,000 70% 120,000 Office segment margin. 126.000 28% 99,000 22% $ 27,000 18% $72.000 63,000 14% 78,000 52% expenses not traceable to offices $36,000 8% Required: 1. Compute the companywide break-even point in dollar sales. Also, compute the break-even point for the Chicago office and for the Minneapolis office. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points? Why? its sales by $75,000 per year? Assume no change in cost behavior patterns. that sales in Minneapolis remain unchanged. Assume no change in fixed costs. 2. By how much would the company's net operating income increase if Minneapolis increased 3. Refer to the original data. Assume that sales in Chicago increase by $50,000 next year and Dur a. Prepare a new segmented income statement for the company using the above format. b. Observe from the income statement you have prepared that the contribution margin ratio for ment margin ratio has changed. How do you explain the change in the segment margin ratio Show both amounts and percentages. Chicago has remained unchanged at 70% (the same as in the above data) but that the seg.

Answer 1

1. Break Even of Company in $ Sales

     Fixed Cost / Contribution Margin %

     Total Fixed cost = (63000 + 126000) = 189000

     189000 / 50% = $ 378000/-

     Break Even of Chicago

     78000 / 70% = $111430

     Break even of Minneapolis

     48000 / 40% = $ 120000 /-

Total Break even of Offices = $ 231430

The company break even is greater than the sum of Break even sales of the offices. This is due to the untraceable fixed expenses in the company

2.

Particulars	Company	%	Chicago	%	Minneapolis	%
Sales	5,25,000	100%	1,50,000	100%	3,75,000	100%
Variable expenses	2,70,000	51%	45,000	30%	2,25,000	60%
Conribution margin	2,55,000	49%	1,05,000	70%	1,50,000	40%
Traceable Fixed Expenses	1,26,000	24%	78,000	52%	48,000	13%
Office segment margin	1,29,000	25%	27,000	18%	1,02,000	27%
Common Fixed expenses not traceable to offices	63,000	12%
Net operating income	66,000	13%

3.

Particulars	Company	%	Chicago	%	Minneapolis	%
Sales	5,00,000	100%	2,00,000	100%	3,00,000	100%
Variable expenses	2,40,000	48%	60,000	30%	1,80,000	60%
Conribution margin	2,60,000	52%	1,40,000	70%	1,20,000	40%
Traceable Fixed Expenses	1,26,000	25%	78,000	39%	48,000	16%
Office segment margin	1,34,000	27%	62,000	31%	72,000	24%
Common Fixed expenses not traceable to offices	63,000	13%
Net operating income	71,000	14%

The reason for the change in the office segment margin ratio is due to the unchanged fixed expense in the chicago office though the corresponding sale have increased for the same.