Required information

Skip to question

$[$The following information applies to the questions displayed below.$]$

Raner, Harris and Chan is a consulting firm specializing in information systems for medical and dental clinics. The firm has two offices$$one in Chicago and one in Minneapolis. It classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company$$s most recent year is given below:

Total Company Office

Chicago Minneapolis

Sales $ $540,000100\mathrm{.}00\%$ $ $180,000100\mathrm{.}00\%$ $ $360,000100\mathrm{.}00\%$

Variable expenses $270,00050\mathrm{.}00\%54,00030\mathrm{.}00\%216,00060\mathrm{.}00\%$

Contribution margin $270,00050\mathrm{.}00\%126,00070\mathrm{.}00\%144,00040\mathrm{.}00\%$

Traceable fixed expenses $151,20028\mathrm{.}00\%93,60052\mathrm{.}00\%57,60016\mathrm{.}00\%$

Office segment margin $118,80022\mathrm{.}00\%$ $ $32,40018\mathrm{.}00\%$ $ $86,40024\mathrm{.}00\%$

Common fixed expenses not traceable to offices $75,60014\mathrm{.}00\%$

Net operating income $ $43,2008\mathrm{.}00\%$

Assume Minneapolis$$s sales by major market are:

Minneapolis Market

Medical Dental

Sales $ $360,000100\mathrm{.}00\%$ $ $240,000100\mathrm{.}00\%$ $ $120,000100\mathrm{.}00\%$

Variable expenses $216,00060\mathrm{.}00\%153,60064\mathrm{.}00\%62,40052\mathrm{.}00\%$

Contribution margin $144,00040\mathrm{.}00\%86,40036\mathrm{.}00\%57,60048\mathrm{.}00\%$

Traceable fixed expenses $39,60011\mathrm{.}00\%14,4006\mathrm{.}00\%25,20021\mathrm{.}00\%$

Market segment margin $104,40029\mathrm{.}00\%$ $ $72,00030\mathrm{.}00\%$ $ $32,40027\mathrm{.}00\%$

Common fixed expenses not traceable to markets $18,0005\mathrm{.}00\%$

Office segment margin $ $86,40024\mathrm{.}00\%$

The company is planning a $$6,000$ advertising campaign next month in either the Medical or Dental market. Marketing studies indicate this campaign would increase Medical market sales by $$48,000$ or Dental market sales by $$42,000.$

Required:

How much would the company's profits increase $($decrease$)$ if it advertised in the Medical market?

How much would the company's profits increase $($decrease$)$ if it advertised in the Dental market?

Should the company advertise in the Medical or Dental market?