268 Chapter 6 EXERCISE 6-16 Working with a Segmented Income Statement; Break-Even Analysis LO6-4.o Kaner, Haris, & Chan is a consulting drin that specializes in information systems for dental clinics. The firm bas two offices-one in Chicago and one in Minneapolis. Th nies the direcr csts of consulting jobs as variable costs. A contribution format segmented statement for the company's most recent year is given below: Office Totai Companty $450,000 100% $150,000 100% $300,000 225,000 50% 45,000 30% 225,000 50% 105,000 70% 126,000 99,000 22% $.27,000 18% Variabie expensos . 100,000 60% 120,000 40% 48,000 16% Traceable fixnd expenes.. Office segment margin Common fixed expenses not traceable to officos .. Net operating income.. 28% 78,000 s72,000 ,2 % -63,000 14% S 36,00086 I. Compute the companywide break-even point in dollar sales. Also, compute the break point for the Chicago office and for the Minneapolis office. Is the compan even point greater than, less than, or equal to the sum of the Chicago and Minnca break-even points? Why? ywide brealk 2. By how much would the compuny's nct operating income increase if Minncapolis increased 3. Refer to the original datu. Assume that sales in Chicago increase by S50,000 next year and its sales by $75,000 per year? Assume that sales in Minneapolis remain unchanged. Assume no change in fixed costs. a. Prepare u new segmented income statement for the company using the above format. Show both amounts and percentages. Observe from the income statement you have prepared that the contribution margin ratio for Chicago has remained unchangcd at 70% (the same as in the above data) but that the segment margin ratio has changed. How do you explain the change in the segment mar- gin ratio h. 268 Chapter 6 EXERCISE 6-16 Working with a Segmented Income Statement; Break-Even Analysis LO6-4.o Kaner, Haris, & Chan is a consulting drin that specializes in information systems for dental clinics. The firm bas two offices-one in Chicago and one in Minneapolis. Th nies the direcr csts of consulting jobs as variable costs. A contribution format segmented statement for the company's most recent year is given below: Office Totai Companty $450,000 100% $150,000 100% $300,000 225,000 50% 45,000 30% 225,000 50% 105,000 70% 126,000 99,000 22% $.27,000 18% Variabie expensos . 100,000 60% 120,000 40% 48,000 16% Traceable fixnd expenes.. Office segment margin Common fixed expenses not traceable to officos .. Net operating income.. 28% 78,000 s72,000 ,2 % -63,000 14% S 36,00086 I. Compute the companywide break-even point in dollar sales. Also, compute the break point for the Chicago office and for the Minneapolis office. Is the compan even point greater than, less than, or equal to the sum of the Chicago and Minnca break-even points? Why? ywide brealk 2. By how much would the compuny's nct operating income increase if Minncapolis increased 3. Refer to the original datu. Assume that sales in Chicago increase by S50,000 next year and its sales by $75,000 per year? Assume that sales in Minneapolis remain unchanged. Assume no change in fixed costs. a. Prepare u new segmented income statement for the company using the above format. Show both amounts and percentages. Observe from the income statement you have prepared that the contribution margin ratio for Chicago has remained unchangcd at 70% (the same as in the above data) but that the segment margin ratio has changed. How do you explain the change in the segment mar- gin ratio h
