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:

 Office Total Company Chicago Minneapolis Sales \$ 450,000 100 % \$ 150,000 100 % \$ 300,000 100 % Variable expenses 225,000 50 % 45,000 30 % 180,000 60 % Contribution margin 225,000 50 % 105,000 70 % 120,000 40 % Traceable fixed expenses 126,000 28 % 78,000 52 % 48,000 16 % Office segment margin 99,000 22 % \$ 27,000 18 % \$ 72,000 24 % Common fixed expenses not traceable to offices 63,000 14 % Net operating income \$ 36,000 8 %

3. Assume that sales in Chicago increase by \$50,000 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).)

Income statement for the company

 Add 1+2 1 2 Total Company Chicago Minneapolis a Sales 500000 100 % 200000 100 % 300000 100 % b Variable expenses 240000 48 % 60000 30 % 180000 60 % c=a-b Contribution margin 260000 52 % 140000 70 % 120000 40 % d Traceable fixed expenses 126000 25 % 78000 52 % 48000 16 % e=c-d Office segment margin 134000 27 % 62000 18 % 72000 24 % f Common fixed expenses not traceable to offices 63000 13 % g=e-f Net operating income 71000 14 %

For % calculation =(Expenses/sales)*100.

Assume no change in fixed costs

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