Raner, Harris and 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:

Office

Total Company Chicago Minneapolis

Sales $450,000100\%150,000100\%300,000100\%$

Variable expenses $225,00050\%45,00030\%180,00060\%$

Contribution margin $225,00050\%105,00070\%120,00040\%$

Traceable fixed expenses $126,00028\%78,00052\%48,00016\%$

Office segment margin $99,00022\%27,00018\%72,00024\%$

Common fixed expenses not traceable to offices $63,00014\%$

Net operating income $36,0008\%$

Required:

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

$1-$b$.$ Compute the break$-$even point for the Chicago office and for the Minneapolis office.

Chicago Minneapolis

$1-$c$.$ Is the companywide break$-$even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break$-$even points?

$2.$ 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.

$3.$ Assume that sales in Chicago increase by $$50,000$ 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.

Office

Total Company Chicago Minneapolis

Sales

Variable expenses

Contribution margin

Traceable fixed expenses

Office segment margin

Common fixed expenses not traceable to offices

Net operating income

b$.$ Observe from the income statement you have prepared that the contribution margin ratio for Chicago 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?