Question

Required information [The following information applies to the questions displayed below.] 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 Common fixed expenses not traceable to offices Net operating income Total Company $ 900,000 100.0% 486,000 54.0% 414,000 46.0% 201,600 22.4% 212,400 23.6% 144,000 16.0% $ 68,400 7.6% Office Chicago Minneapolis $ 180,000 100% $ 720,000 100% 54,000 30% 432,000 60% 126,000 70% 288,000 40% 93,600 52% 108,000 $ 32,400 18% $ 180,000 25% 3. Assume that sales in Chicago increase by $60,000 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 percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3).)

Answer 1

Solution

Income Statement
			Office
	Total Company		Chicago		Minneapolis
	Amount	%	Amount	%	Amount	%
Sales	$ 960,000	100.0%	$ 240,000	47250.0%	$ 720,000	100.0%
Variable cost	$ 504,000	52.5%	$ 72,000	30.0%	$ 432,000	60.0%
Contribution margin	$ 456,000	47.5%	$ 168,000	70.0%	$ 288,000	40.0%
Traceable fixed cost	$ 201,600	21.0%	$ 93,600	39.0%	$ 108,000	15.0%
Office segment margin	$ 254,400	26.5%	$ 74,400	31.0%	$ 180,000	25.0%
Common fixed cost	$ 144,000	15.0%
Net Operating income	$ 110,400	11.5%

With the increase in sales in chicago the variable cost will increase proportionately.