Question

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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 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 below:

  

					Office
	Total Company				Chicago				Minneapolis
Sales	$	450,000	100	%	$	150,000	100	%	$	300,000	100	%
Variable expenses		225,000	50	%		45,000	30	%		180,000	60	%
Contribution margin		225,000	50	%		105,000	70	%		120,000	40	%
Traceable fixed expenses		126,000	28	%		78,000	52	%		48,000	16	%
Office segment margin		99,000	22	%	$	27,000	18	%	$	72,000	24	%
Common fixed expenses not traceable to offices		63,000	14	%
Net operating income	$	36,000	8	%

12.

value:
10.00 points

Required information

Required:

1-a. Compute the companywide break-even point in dollar sales.

1-b. Compute the break-even point in sales dollars 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?

	Greater than
	Less than
	Equal to

          

References

eBook & Resources

WorksheetLearning Objective: 05-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions.

Difficulty: 1 EasyLearning Objective: 05-05 Compute companywide and segment break-even points for a company with traceable fixed costs.

Check my work

13.

value:
10.00 points

Required information

2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $75,000 per year? Assume no change in cost behavior patterns.

  

References

eBook & Resources

WorksheetLearning Objective: 05-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions.

Difficulty: 1 EasyLearning Objective: 05-05 Compute companywide and segment break-even points for a company with traceable fixed costs.

Check my work

14.

value:
10.00 points

Required information

3. Refer to the original data. Assume that sales in Chicago increase by $50,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs.

  

a. Prepare a new segmented contribution format income statement for the company. (Round your percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3))

Answer 1

Answer 1-a:

Companywide contribution margin ratio = 50%

Companywide fixed expenses = Traceable fixed expenses + Common fixed expenses
Companywide fixed expenses = $126,000 + $63,000
Companywide fixed expenses = $189,000

Companywide breakeven point in dollar sales = Companywide fixed expenses / Companywide contribution margin ratio
Companywide breakeven point in dollar sales = $189,000 / 0.50
Companywide breakeven point in dollar sales = $378,000

Answer 1-b.

Chicago Office:

Breakeven point in dollar sales = Traceable fixed expenses / Contribution margin ratio
Breakeven point in dollar sales = $78,000 / 0.70
Breakeven point in dollar sales = $111,428.57

Minneapolis Office:

Breakeven point in dollar sales = Traceable fixed expenses / Contribution margin ratio
Breakeven point in dollar sales = $48,000 / 0.40
Breakeven point in dollar sales = $120,000

Answer 1-c.

Sum of breakeven point of both offices = Breakeven point of Chicago Office + Breakeven point of Minneapolis Office
Sum of breakeven point of both offices = $111,428.57 + $120,000.00
Sum of breakeven point of both offices = $231,428.57

The companywide breakeven point in greater than the sum of breakeven point of Chicago and Minneapolis Office.

Answer 2.

Minneapolis Office:

Increase in net operating income = Increase in sales * Contribution margin ratio
Increase in net operating income = $75,000 * 0.40
Increase in net operating income = $30,000

Answer 3.

Office Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses Net operating income $ $ $ $ $ $ $ Total Company 500,000 100.0% $ 240,000 48.0% $ 260,000 52.0% $ 126,000 25.2% $ 134,000 26.8% $ 63,000 12.6% 71,000 14.2% Chicago 200,000 60,000 140,000 78,000 62,000 100.0% $ 30.0% $ 70.0% $ 39.0% $ 31.0% $ Minneapolis 300,000 100.0% 180,000 60.0% 120,000 40.0% 48,000 16.0% 72,000 24.0%