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 $ 462,000 100 % $ 156,000 100 % $ 306,000 100 % Variable expenses 233,000 50 % 49,000 31 % 184,000 60 % Contribution margin 229,000 50 % 107,000 69 % 122,000 40 % Traceable fixed expenses 127,600 28 % 78,800 51 % 56,000 18 % Office segment margin 101,400 22 % $ 28,200 18 % $ 66,000 22 % Common fixed expenses not traceable to offices 65,000 14 % Net operating income $ 36,400 8 %

2. By how much would the companys net operating income increase if Minneapolis increased its sales by $77,000 per year? Assume no change in cost behavior patterns.

3. Assume that sales in Chicago increase by $52,000 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.