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Raner, Harris & Chan is a consulting firm that specializes in information systems for medical...

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 $ 1,012,500   100.0 %   $ 202,500   100 %   $ 810,000   100 %
Variable expenses   546,750   54.0 %     60,750   30 %     486,000   60 %
Contribution margin   465,750   46.0 %     141,750   70 %     324,000   40 %
Traceable fixed expenses   226,800   22.4 %     105,300   52 %     121,500   15 %
Office segment margin   238,950   23.6 %   $ 36,450   18 %   $ 202,500   25 %
Common fixed expenses not traceable to offices   162,000   16.0 %                        
Net operating income $ 76,950   7.6 %                        
 

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?

2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $101,250 per year? Assume no change in cost behavior patterns.

3. Assume that sales in Chicago increase by $67,500 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).)

 

Apr 08 2020 View more View Less

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