Question

chapter 7 h 1

Required information

Exercise 7-16 Working with a Segmented Income Statement; Break-Even Analysis [LO7-4, LO7-5]

[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:

							Office
	Total Company						Chicago						Minneapolis
Sales	$	787,500		100.0	%		$	157,500		100	%		$	630,000		100	%
Variable expenses		425,250		54.0	%			47,250		30	%			378,000		60	%
Contribution margin		362,250		46.0	%			110,250		70	%			252,000		40	%
Traceable fixed expenses		176,400		22.4	%			81,900		52	%			94,500		15	%
Office segment margin		185,850		23.6	%		$	28,350		18	%		$	157,500		25	%
Common fixed expenses not traceable to offices		126,000		16.0	%
Net operating income	$	59,850		7.6	%

Exercise 7-16 Part 1

Required:

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

1-b. Compute the break-even point 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?

Answer 1

c) Company wide break even point greater than sum of Chicago and Minneapolis break even points.