Question

Required information Exercise 7-16 Working with a Segmented Income Statement; Break-Even Analysis (LO7-4, LO7-5) [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 $450,000 100% 225,000 50% 225,000 50% 126,000 28% 99,000 22% Office Chicago Minneapolis $150,000 100% $300,000 100% 45,000 30% 180,000 60% 105,000 70% 120,000 40% 78,000 52% 48,000 16% $ 27,000 18% $ 72,000 24% 63,000 $ 36,000 14% 8% Exercise 7-16 Part 2 2. By how much would the company's net operating income increase if Minneapolis increased its sales by $75,000 per year? Assume no change in cost behavior patterns. Net operating income increase

Answer 1

Answers

• Requirement 2

A	Increase in Sales of Minnepolis	$75,000
B	Contribution margin ratio	40%
C = A x B	Net Operating Income would increase	$30,000 Answer

• Requirement 3 [a]

	Total Company		Chicago			Minneopolis
Sales	$500,000	100.0%	$200,000	100.0%	$300,000		100.0%
Variable expenses	$240,000	48.0%	$60,000	30.0%	$180,000		60.0%
Contribution margin	$260,000	52.0%	$140,000	70.0%	$120,000		40.0%
Traceable fixed expenses	$126,000	25.2%	$78,000	39.0%	$48,000		16.0%
Office segment margin	$134,000	26.8%	$62,000	31.0%	$72,000		24.0%
Common fixed expenses not traceable to offices	$63,000	12.6%			%
Net operating income	$71,000	14.2%			%