Question

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

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 below:

 Total Company Chicago Minneapolis Sales \$787,500 100% \$157,500 100% \$630,000 100% Variable Expense 425,250 54% 47,250 30% 378,000 60% Contrib. Margin 362,250 46% 110,250 70% 252,000 40% Traceable Fixed Expense 176,400 22.40% 81,900 52% 94,500 15% Office Segment Margin 185,850 23.60% 28,350 18% \$157,500 25% Common Fixed expenses not traceable to others 126,000 16% Net Operating Income \$59,850 7.60%
1-a.

Compute the companywide break-even point in dollar sales. (Round "CM ratio" to 2 decimal places and final answer to the nearest whole dollar amount.)

 1-b. Compute the break-even point for the Chicago office and for the Minneapolis office. (Round "CM ratio" to 2 decimal places and final answers to the nearest whole dollar amount.)

1. Computation of BEP in dollar sales over company wide

BEP = Total Fixed Costs / Contribution Margin

BEP = (\$176400+\$126000) / 46%

BEP in dollar sales = \$657391

2. Computation of BEP in dollar sales for Chicago and Minneapolis

BEP in Chicago = Total Fixed Costs / Contribution Margin

BEP in Chicago = (\$81900) / 70%

BEP in Chicago dollar sales = \$117000

BEP in Minneapolis = Total Fixed Costs / Contribution Margin

BEP in Minneapolis = (\$94500) / 40%

BEP in Minneapolis dollar sales = \$236250

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