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	$	1,125,000	100.0	%	$	225,000	100	%	$	900,000	100	%
Variable expenses		607,500	54.0	%		67,500	30	%		540,000	60	%
Contribution margin		517,500	46.0	%		157,500	70	%		360,000	40	%
Traceable fixed expenses		252,000	22.4	%		117,000	52	%		135,000	15	%
Office segment margin		265,500	23.6	%	$	40,500	18	%	$	225,000	25	%
Common fixed expenses not traceable to offices		180,000	16.0	%
Net operating income	$	85,500	7.6	%

References

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

5.

value: 1.00 points

Required information

Exercise 6-16 Part 1

Required:

1-a.	Compute the companywide break-even point in dollar 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.)

1-c.

Is the companywide 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

References

eBook & Resources

WorksheetDifficulty: 1 EasyLearning Objective: 06-05 Compute companywide and segment break-even points for a company with traceable fixed costs.

Exercise 6-16 Part 1Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions.

Check my work

6.

value: 0.50 points

Required information

Exercise 6-16 Part 2

2.	By how much would the companys net operating income increase if Minneapolis increased its sales by $112,500 per year? Assume no change in cost behavior patterns.

References

eBook & Resources

WorksheetDifficulty: 1 EasyLearning Objective: 06-05 Compute companywide and segment break-even points for a company with traceable fixed costs.

Exercise 6-16 Part 2Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions.

Check my work

7.

value: 1.00 points

Required information

Exercise 6-16 Part 3

3.	Refer to the original data. Assume that sales in Chicago increase by $75,000 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. (Round your percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3))