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	$	1,125,000		100.0	%		$	225,000		100	%		$	900,000		100	%
Variable expenses		607,500		54.0	%			67,500		30	%			540,000		60	%
Contribution margin		517,500		46.0	%			157,500		70	%			360,000		40	%
Traceable fixed expenses		252,000		22.4	%			117,000		52	%			135,000		15	%
Office segment margin		265,500		23.6	%		$	40,500		18	%		$	225,000		25	%
Common fixed expenses not traceable to offices		180,000		16.0	%
Net operating income	$	85,500		7.6	%

3. Assume that sales in Chicago increase by $75,000 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).)

Sales

Variable expenses

Contribution margin

Traceable fixed expenses

Office segment margin

Common fixed expenses not traceable to segments

Net operating income

Answer 1

		Total		Chicago		Minneapolis
		Amount	%	Amount	%	Amount	%
Sales		1200000	100%	300000	100%	900000	100%
Variable cost		630000	55%	90000	30%	540000	60%
Contribution margin		570000	45%	210000	70%	360000	40%
Traceable fixed cost		252000	21%	117000	39%	135000	15%
Office segment margin		318000	24%	93000	31%	225000	25%
Common Fixed cost		180000	15%
Net income		138000	9%