Reference no: EM131579832
Exercise - 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 below:
|
|
Total Company
|
Office
|
|
Chicago
|
Minneapolis
|
|
Sales
|
$450,000
|
100%
|
$150,000
|
100%
|
$300,000
|
100%
|
|
Variable expenses
|
225,000
|
50%
|
45,000
|
30%
|
180,000
|
60%
|
|
Contribution margin
|
225,000
|
50%
|
105,000
|
70%
|
120,000
|
40%
|
|
Traceable fixed expenses
|
126,000
|
28%
|
78,000
|
52%
|
48,000
|
16%
|
|
Office segment margin
|
99,000
|
22%
|
$27,000
|
18%
|
$72,000
|
24%
|
|
Common fixed expenses not traceable to markets
|
63,000
|
14%
|
|
|
|
|
|
Net Operating Income
|
$36,000
|
8%
|
|
|
|
|
Part 1 -
Required -
a. Compute the company wide break-even point in dollar sales.
b. Compute the break -even point for the Chicago office and for the Minneapolis office.
c. Is the company-wide break-even point greater than, less than or equal to the sum of the Chicago and Minneapolis break-even points?
- Greater than
- Less than
- Equal to
Part 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.
Part 3 -
Refer to the original data. Assume that sales in Chicago increase by $50,000 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.