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:

							Office
	Total Company						Chicago						Minneapolis
Sales	$	412,500		100.0	%		$	82,500		100	%		$	330,000		100	%
Variable expenses		222,750		54.0	%			24,750		30	%			198,000		60	%
Contribution margin		189,750		46.0	%			57,750		70	%			132,000		40	%
Traceable fixed expenses		92,400		22.4	%			42,900		52	%			49,500		15	%
Office segment margin		97,350		23.6	%		$	14,850		18	%		$	82,500		25	%
Common fixed expenses not traceable to offices		66,000		16.0	%
Net operating income	$	31,350		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?

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.)

	Break-even point in dollar sales

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.)

	Break-Even Point Chicago office Minneapolis office

Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points?

2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $41,250 per year? Assume no change in cost behavior patterns.

	Net operating income increase

3. Assume that sales in Chicago increase by $27,500 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).)

	Segments Total Company Chicago Minneapolis Amount % Amount % Amount % 0 0.0 0 0.0 0 0.0 0 0.0 $0 0.0 $0 0.0 $0 0.0

Answer 1

1-a)
The company wide break even point in dollar sales
Break even point (in dollars)	=	Total fixed costs
		Overall contribution margin ratio
	=	Traceable fixed expenses+ common fixed expenes
			Total contribution margin
			Company Sales
	=	$92400 + $66000
		$189,750
		$412,500
	=	158400
		46%
	=	$        344,348
1-b)
The breakven point in dollar sales for chicago office
Break even point (in dollars)	=	Traceable fixed expenses of the segment
		Contribution margin ratio of the segment
	=	Traceable fixed expenses of the segment
		Contribution margin of the segment
			Segment Sales
	=	42900
		57750
		82500
	=	42900
		70%
	=	$          61,286
The breakven point in dollar sales for Minneapolis office
Break even point (in dollars)	=	Traceable fixed expenses of the segment
		Contribution margin ratio of the segment
	=	Traceable fixed expenses of the segment
		Contribution margin of the segment
			Segment Sales
	=	49500
		132000
		330000
	=	49500
		40%
	=	$        123,750
1-c)
The company wide break even point is $ 344,348, and the breakeven point of Chicago & Minneapolis office together is $ 185,036 (61286+123750)
So , company wide breakeven point is more
2)		16500
The company's net operating income would increase by $ 16500 (41250*40%) (increase in sales * contribution margin)