Question

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.)

  

Answer 1

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