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In: Accounting

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 $ 525,000 100.0 % $ 105,000 100 % $ 420,000 100 %
Variable expenses 283,500 54.0 % 31,500 30 % 252,000 60 %
Contribution margin 241,500 46.0 % 73,500 70 % 168,000 40 %
Traceable fixed expenses 117,600 22.4 % 54,600 52 % 63,000 15 %
Office segment margin 123,900 23.6 % $ 18,900 18 % $ 105,000 25 %
Common fixed expenses not traceable to offices 84,000 16.0 %
Net operating income $ 39,900 7.6 %

3. Assume that sales in Chicago increase by $35,000 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).)

Solutions

Expert Solution

Requirement 3

Increase in net income (64400-39900) $       24,500.00
Income Statement
Office
Total Company Chicago Minneapolis
Amount % Amount % Amount %
Sales $    5,60,000.00 100.0% $   1,40,000.00 100.0% $         4,20,000.00 100.0%
Variable cost $    2,94,000.00 52.5% $       42,000.00 30.0% $         2,52,000.00 60.0%
Contribution margin $    2,66,000.00 47.5% $       98,000.00 70.0% $         1,68,000.00 40.0%
Traceable fixed cost $    1,17,600.00 21.0% $       54,600.00 39.0% $             63,000.00 15.0%
Office segment margin $    1,48,400.00 26.5% $       43,400.00 31.0% $         1,05,000.00 25.0%
Common fixed cost $        84,000.00 15.0%
Net Operating income $        64,400.00 11.5%

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