A. 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 Total Company $450,000 100% Office Chicago $150,000 100% Minneapolis $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% Office segment margin 99,000 22% 78,000 52% $27,000 18% 48,000 16% $72,000 24% Common fixed expenses not 63,000 traceable to offices 14% Net operating income $ 36,000 8% Required: 1. 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. 2. 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. How much would the company's net operating income increase/decrease? B. Refer to the data in A. Assume that Minneapolis' sales by major market are: Market Minneapolis Sales Variable expenses Contribution margin Traceable fixed expenses $300,000 100% 180,000 60% 120,000 40% Medical Dental $200,000 100% $100,000 100% 128,000 64% 52,000 52% Market segment margin 33,000 11% 87,000 29% 72,000 12,000 $60,000 36% 48,000 48% 6% 21,000 21% 30% $27,000 27% Common fixed expenses not 15,000 5% traceable to markets Office segment margin $ 72,000 24% The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $5,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,000 or increase sales in the Dental market by $35,000. Required: 3. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? 4. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Dental Market? 5. In which of the markets would you recommend that the company focus its advertising campaign? 6. In A, Minneapolis shows $48,000 in traceable fixed expenses. What happened to the $48,000 in this exercise? Activ Go to