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: 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 Minneapolis $510,880 100% 306, oee 60% 204.800 4x 61,289 12% 142,800 28% Market Medical Dental $340,880 100% $170,888 1087 221,000 65% 85,600 50% 119.689 35% 85,000 17,000 5% $102,080 30% $ 40,800 24% 15,300 $127,580 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 $6,800. Marketing studies indicate that such a campaign would increase sales in the Medical market by $59.500 or increase sales in the Dental market by $51.000. 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? Prey !!

Answer 1

Requirement 1

Company profit

Increase

By

$ 31,875.00

.

Requirement 2

Company profit

Increase

By

$ 18,700.00

.

Requirement 3

Answer--------Medical should be selected

Working

	Alternate 1	Alternate 2
	Medical	Dental
Contribution margin ratio	65%	50%
Increase in sales	$       59,500.00	$       51,000.00
Additional Contribution margin due to additional sales	$       38,675.00	$       25,500.00
Less; Additional cost of Advertising campaign	$          6,800.00	$         6,800.00
Net increase in total income	$       31,875.00	$       18,700.00