Question

Check my work Required information The following information applies to the questions displayed below. Part 2 of 2 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: 16.7 points eBook Print Total Company $ 450,000 100% 225,000 50% 225,000 50% 126,000 28% 99,000 22% 63,000 14% $36,000 88 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% $ 72,000 245 Sales Variable expenses Contribution margin Traceable fixed expenses office segment margin Common fixed expenses not traceable to offices Net operating income References 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

Solution

Net Operating income increase

$   30,000.00

Working

Increase in sales	$   75,000.00
Increase in variable cost (75000 x 60%)	$   45,000.00
Net Operating income increase	$   30,000.00

.Update income statement

Income Statement
			Office
	Total Company		Chicago		Minneapolis
	Amount	%	Amount	%	Amount	%
Sales	$ 525,000	100.0%	$ 150,000	47250.0%	$ 375,000	100.0%
Variable cost	$ 270,000	51.4%	$ 45,000	30.0%	$ 225,000	60.0%
Contribution margin	$ 255,000	48.6%	$ 105,000	70.0%	$ 150,000	40.0%
Traceable fixed cost	$ 126,000	24.0%	$ 78,000	52.0%	$ 48,000	12.8%
Office segment margin	$ 129,000	24.6%	$ 27,000	18.0%	$ 102,000	27.2%
Common fixed cost	$ 63,000	12.0%
Net Operating income	$ 66,000	12.6%