SB Exercise 7-16 through Exercise 7-17 (Algo)

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Raner, Harris and 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:

	Total Company		Office
			Chicago		Minneapolis
Sales	$ 454,500	100%	$ 151,500	100%	$ 303,000	100%
Variable expenses	227,250	50%	45,450	30%	181,800	60%
Contribution margin	227,250	50%	106,050	70%	121,200	40%
Traceable fixed expenses	127,260	28%	78,780	52%	48,480	16%
Office segment margin	99,990	22%	$ 27,270	18%	$ 72,720	24%
Common fixed expenses not traceable to offices	63,630	14%
Net operating income	$ 36,360	8%

Brewer 9e Rechecks 2021-11-15

Exercise 7-17 (Algo) Working with a Segmented Income Statement [LO7-4]

Assume that Minneapolis sales by major market are:

	Minneapolis		Market
			Medical		Dental
Sales	$ 303,000	100%	$ 202,000	100%	$ 101,000	100%
Variable expenses	181,800	60%	129,280	64%	52,520	52%
Contribution margin	121,200	40%	72,720	36%	48,480	48%
Traceable fixed expenses	33,330	11%	12,120	6%	21,210	21%
Office segment margin	87,870	29%	$ 60,600	30%	$ 27,270	27%
Common fixed expenses not traceable to offices	15,150	5 %
Net operating income	$ 72,720	24 %

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 $5,050. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,400 or increase sales in the Dental market by $35,350.

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?