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	$	1,050,000		100.0	%		$	210,000		100	%		$	840,000		100	%
Variable expenses		567,000		54.0	%			63,000		30	%			504,000		60	%
Contribution margin		483,000		46.0	%			147,000		70	%			336,000		40	%
Traceable fixed expenses		235,200		22.4	%			109,200		52	%			126,000		15	%
Office segment margin		247,800		23.6	%		$	37,800		18	%		$	210,000		25	%
Common fixed expenses not traceable to offices		168,000		16.0	%
Net operating income	$	79,800		7.6	%

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?

Greater than, Less than, or Equal to

By how much would the company’s net operating income increase if Minneapolis increased its sales by $105,000 per year? Assume no change in cost behavior patterns.

	Net operating income increase

Assume that sales in Chicago increase by $70,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs.

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 %

Answer 1