Question

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% 14% 63,000 $ 36,000 Exercise 7-16 Part 1 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? Complete this question by entering your answers in the tabs below. Show less Req 1A Req 1B Req 10 Compute the companywide break-even point in dollar sales. (Round "CM ratio" to 2 decimal places.) Break-even point in dollar sales

Answer 1

1A) Break even point = Fixed cost/CM ratio

= (126,000+63,000)/50%

= 378,000

1B)

Chicago = 78,000/70% = 111,429

Minneapolis = 48,000/40% = 120,000

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