Raner, Harris & 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: Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Total Company $ 486,000 100.00% 243,000 50.00% 243,000 50.00% 136,080 28.00% Office Chicago Minneapolis $ 162,000 100.00% $ 324,000 100.00% 48,600 30.00% 194,400 60.00% 113,400 70.00% 129,600 40.00% 84,240 52.00% 51,840 16.00% $ 29,160 18.00% $ 77,760 24.00% 22.00% 106,920 68,040 Common fixed expenses not traceable to offices 14.00% Net operating income $ 38,880 8.00% 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 company's net operating income increase if Minneapolis increased its sales by $81,000 per year? Assume no change in cost behavior patterns. Net operating income increase 3. Assume that sales in Chicago increase by $54,000 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 intermediate calculations and percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3 and other answers to the nearest whole dollar.)) Segments Total Company Chicago Minneapolis Amount % Amount % Amount % 0 0.0 0 0.0 0 0.0 0 0.0 $ 0 0.0 $ 0 0.0 $ 0 0.0 Assume that Minneapolis' sales by major market are: Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Minneapolis $ 324,000 100.00% 194,400 60.00% 129,600 40.00% 35,640 11.00% Market Medical Dental $ 216,000 100.00% $ 108,000 100.00% 138,240 64.00% 56,160 52.00% 77,760 36.00% 51,840 48.00% 12,960 6.00% 22,680 21.00% 93,960 29.00% $ 64,800 30.00% $ 29,160 27.00% Common fixed expenses not traceable to markets 5.00% 16,200 $ 77,760 Office segment margin 24.00% The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $5,400. Marketing studies indicate that such a campaign would increase sales in the Medical market by $43,200 or increase sales in the Dental market by $37,800. Required: 1. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? 2. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Dental Market? 3. In which of the markets would you recommend that the company focus its advertising campaign
