Question

# Required information [The following information applies to the questions displayed below.]    Raner, Harris & Chan...

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:

 Office Total Company Chicago Minneapolis Sales \$ 450,000 100.0 % \$ 90,000 100 % \$ 360,000 100 % Variable expenses 243,000 54.0 % 27,000 30 % 216,000 60 % Contribution margin 207,000 46.0 % 63,000 70 % 144,000 40 % Traceable fixed expenses 100,800 22.4 % 46,800 52 % 54,000 15 % Office segment margin 106,200 23.6 % \$ 16,200 18 % \$ 90,000 25 % Common fixed expenses not traceable to offices 72,000 16.0 % Net operating income \$ 34,200 7.6 %

2. By how much would the company’s net operating income increase if Minneapolis increased its sales by \$45,000 per year? Assume no change in cost behavior patterns.

3. Assume that sales in Chicago increase by \$30,000 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).)

Solution 2:

If mineapolis increased its sales by \$45,000 then increase in company's net operating income = Increase in sales of Minneapolis * Contribution margin ratio of Minneapolish

= \$45,000 * 40% = \$18,000

Solution 3a:

 Segment Income Statement Office Particulars Total Company Chicago Minneapolis Sales \$480,000.00 100.0% \$120,000.00 100.0% \$360,000.00 100.0% Variable expenses \$252,000.00 52.5% \$36,000.00 30.0% \$216,000.00 60.0% Contribution margin \$228,000.00 47.5% \$84,000.00 70.0% \$144,000.00 40.0% Traceable fixed expenses \$100,800.00 21.0% \$46,800.00 39.0% \$54,000.00 15.0% Office segment margin \$127,200.00 26.5% \$37,200.00 31.0% \$90,000.00 25.0% Common fixed expenses not traceable to offices \$72,000.00 15.0% Net operating income \$55,200.00 11.5%

#### Earn Coins

Coins can be redeemed for fabulous gifts.