Question

[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 $ 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 % 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).)

Answer 1

• Requirement 3

	Total Company		Chicago		Minneopolis
Sales	$1,080,000	100.0%	$270,000 [202500 + 67500]	100.0%	$810,000	100.0%
Variable expenses	$567,000	52.5%	$81,000 [270000 x 30%]	30.0%	$486,000	60.0%
Contribution margin	$513,000	47.5%	$189,000	70.0%	$324,000	40.0%
Traceable fixed expenses	$226,800	21.0%	$105,300	39.0%	$121,500	15.0%
Office segment margin	$286,200	26.5%	$83,700	31.0%	$202,500	25.0%
Common fixed expenses not traceable to offices	$162,000	15.0%			%
Net operating income	$124,200	11.5%			%