Question

Exercise 7-17 Working with a Segmented Income Statement [LO7-4] 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: 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 Market Minneapolis Medical Dental $420,000 100% $280, eee 100% $140,000 100% 252,000 60% 182,000 65% 70,000 50% 168,00e 40% 98,eee 35% 70,000 sex 50,400 12% 14,000 5% 36,400 26% 117,600 28% $ 84, eee 30% $ 33,600 24% 12,600 $105,000 25% 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 $5,600 Marketing studies indicate that such a campaign would increase sales in the Medical market by $49,000 or increase sales in the Dental market by $42,000 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?