ll loP mat income statement segmented by geographic market. as ys sales manager believes that sales in the Central geographic market could npadby 15% if monthly advertising is increased by $25,000 would you recom- Prepare The company ibe increased advertising? Show computations to support your answer. 11-3 Working with a Segmented Income Statement ILO11 XERCISE ASSOciates is a consulting firm that specializes in information systems for con- Midleton n landscaping companies. The firm has two offices-one in Toronto and one in gruction t The firm classifies the direct costs of consulting jobs as variable costs. A segmented contributi ant format income statement for the company's most recent year is given below: Office Total Company Toronto ales Variable expenses Contribution margin fraceable fiued expenses..18000 224 $750000 1000% s150000 405000 540 345000 460 45000 30 105000 70 78000 52 Vancouver 0000 100% 360000 60 240000 0 90000 15 inni _ s27 00-15% s5000 25% Offie segment margn0 Common fived expenses not traceable to offices Operating income 120000160 $57000 76% Required 1 By how much would the company's operating income increase if Vancouver increased its sales by $75.000 per year? Assume no change in cost behaviour patterns. Refer to the original data. Assume that sales in Toronto increase by $50.000 next year and that sales in Vancouver remain unchanged. Assume no change in fixed costs. a Prepare a new segmented income statement for the company using the above format. 2 Show both amounts and percentages Observe from the income statement you have prepared that the CM ratio for Toronto has remained unchanged 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 margin ratio? b 11-4 Working with a Segmented Income Statement ILO1] to the data in Exercise 11-3. Assume that Vancouver's sales by major market are as XERCISE follows