Question

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	$	712,500		100.0	%		$	142,500		100	%		$	570,000		100	%
Variable expenses		384,750		54.0	%			42,750		30	%			342,000		60	%
Contribution margin		327,750		46.0	%			99,750		70	%			228,000		40	%
Traceable fixed expenses		159,600		22.4	%			74,100		52	%			85,500		15	%
Office segment margin		168,150		23.6	%		$	25,650		18	%		$	142,500		25	%
Common fixed expenses not traceable to offices		114,000		16.0	%
Net operating income	$	54,150		7.6	%

Required:

1-a. Compute the companywide break-even point in dollar sales.

1-b. Compute the break-even point for the Chicago office and for the Minneapolis office.

1-c. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points?

Answer 1

1a.

Breakeven point in dollars = ($159,600 + $114,000) / 46% = $594,783

1b.

Breakeven point:

Chicago = $74,100 / 70% = $105,857

Minneapolis = $85,500 / 40% = $213,750

1c.

Companywide Breakeven point = $594,783

Total of Chicago and Minneapolis Breakeven point = $105,857 + $213,750 = $319,607

Companywide Breakeven point is greater.