Question
Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two officesone in Chicago
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:
Office | |||||||||||||||||
Total Company | Chicago | Minneapolis | |||||||||||||||
Sales | $ | 450,000 | 100 | % | $ | 150,000 | 100 | % | $ | 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 | % | 78,000 | 52 | % | 48,000 | 16 | % | ||||||||
Office segment margin | 99,000 | 22 | % | $ | 27,000 | 18 | % | $ | 72,000 | 24 | % | ||||||
Common fixed expenses not traceable to offices | 63,000 | 14 | % | ||||||||||||||
Net operating income | $ | 36,000 | 8 | % | |||||||||||||
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.
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 companys 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. (Round your percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3).)
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