Exercise 6-16 Working with a Segmented Income Statement; Break-Even Analysis [LO6-4, LO6-5]

[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 officesone 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 companys most recent year is given below:

					Office
	Total Company	Chicago	Minneapolis
Sales	$	562,500	100.0	%	$	112,500	100	%	$	450,000	100	%
Variable expenses		303,750	54.0	%		33,750	30	%		270,000	60	%
Contribution margin		258,750	46.0	%		78,750	70	%		180,000	40	%
Traceable fixed expenses		126,000	22.4	%		58,500	52	%		67,500	15	%
Office segment margin		132,750	23.6	%	$	20,250	18	%	$	112,500	25	%
Common fixed expenses not traceable to offices		90,000	16.0	%
Net operating income	$	42,750	7.6	%

Required:

1-a.	Compute the companywide break-even point indollar sales.(Round "CM ratio" to 2 decimal places and final answer to the nearest whole dollar amount.)

1-b.	Compute the break-even point for the Chicago office and for the Minneapolis office.(Round "CM ratio" to 2 decimal places and final answers to the nearest whole dollar amount.)

2.	By how much would the companys net operating income increase if Minneapolis increased its sales by $56,250 per year? Assume no change in cost behavior patterns.

3.	Refer to the original data. Assume that sales in Chicago increase by $37,500 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.(Round your percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3))