Preparation of segmented income statement

Reference no: EM1319673

Marple Associates is a consulting firm that specializes in information systems for construction and landscaping companies. The firm has two offices-one in Houston and one in Dallas. The firm classifies the direct costs of consulting jobs as variable costs. A segmented for the company's most recent year is given below:

			Office
	Total Company		Houston		Dallas
Sales.....	$750,000	100.0%	$150,000	100%	$600,000	100%
Variable expenses...	405,000	54.0	45,000	30	360,000	60
Contribution margin....	345,000	46.0	105,000	70	240,000	40
Traceable fixed expenses....	168,000	22.4	78,000	52	90,000	15
Office segment margin....	177,000	23.6	$27,000	18%	$150,000	25%
Common fixed expenses not traceable to offices....	120,000	16.0
Net operating income....	$57,000	7.6%

Required:

1. By how much would company's net operating income increase if Dallas increased its sales by $75,000 per year? Assume no change in cost behavior patterns.

2. Refer to the original data. Assume that sales in Houston increase by $50,000 next year and that sale in Dallas remain unchanged. Assume no change in fixed costs.

a. Prepare a new segmented income statement for the company using the above format. Show both amounts and percentages.

b. observer form the income statement you have prepared that the Cm ratio for Houston has remained unchanged at 70% (the same as in the above data) but that the segment margin raio has changed. How do you explain the change in the segment margin ratio?

Reference no: EM1319673

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