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 %

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?

Solution:-

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

 Company Fixed cost 172,800 CM Ratio 46.00% Break-even point in dollars 375,652.17

1-b. Compute the break-even point for the Chicago office and for the Minneapolis office:-

 Cicago Minneapolis Fixed cost 46,800 54,000 CM Ratio 70.00% 40.00% Break-even point in dollars 66,857.14 135,000

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:-

Company wide break-even is greater than the sum of the offices because the companywidebreak-even point takes into account the common fixed expenses that do not affect the segment break-even calculations.

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