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SB Exercise 6-16 through Exercise 6-17 (Algo)

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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	$	486,000		100	%		$	168,000		100	%		$	318,000		1	%
Variable expenses		249,000		50	%			57,000		30	%			190,800		60	%
Contribution margin		237,000		50	%			111,000		70	%			127,200		40	%
Traceable fixed expenses		130,800		28	%			80,400		52	%			50,880		16	%
Office segment margin		106,200		22	%		$	30,600		18	%		$	76,320		24	%
Common fixed expenses not traceable to offices		69,000		14	%
Net operating income	$	37,200		8	%

Exercise 6-17 (Algo) Working with a Segmented Income Statement [LO6-4]

Assume that Minneapolis sales by major market are:

							Market
	Minneapolis						Medical						Dental
Sales	$	318,000		100	%		$	224,000		100	%		$	124,000		100	%
Variable expenses		190,800		60	%			134,000		64	%			58,000		52	%
Contribution margin		127,200		40	%			90,000		36	%			66,000		48	%
Traceable fixed expenses		50,880		16	%			14,400		6	%			27,000		21	%
Market segment margin		76,320		24	%		$	75,600		30	%		$	39,000		27	%
Common fixed expenses not traceable to markets		15,000		5	%
Office segment margin	$	61,320		19	%

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 $11,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $52,000 or increase sales in the Dental market by $53,000.

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?