Question

Exercise 7-16 Working with a Segmented Income Statement; Break-Even Analysis [LO7-4, LO7-5]

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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	$	825,000		100.0	%		$	165,000		100	%		$	660,000		100	%
Variable expenses		445,500		54.0	%			49,500		30	%			396,000		60	%
Contribution margin		379,500		46.0	%			115,500		70	%			264,000		40	%
Traceable fixed expenses		184,800		22.4	%			85,800		52	%			99,000		15	%
Office segment margin		194,700		23.6	%		$	29,700		18	%		$	165,000		25	%
Common fixed expenses not traceable to offices		132,000		16.0	%
Net operating income	$	62,700		7.6	%

Exercise 7-16 Part 3

3. Assume that sales in Chicago increase by $55,000 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).)

Answer 1

	Total Company		Chicago		Minneapolis
Sales	$      880,000	100.0%	$        220,000	100.0%	$     660,000	100.0%
Variable Expenses	$      462,000	52.5%	$          66,000	30.0%	$     396,000	60.0%
Contribution Margin	$      418,000	47.5%	$        154,000	70.0%	$     264,000	40.0%
Traceable fixed expenses	$      184,800	21.0%	$          85,800	39.0%	$       99,000	15.0%
Office segment margin	$      233,200	26.5%	$          68,200	31.0%	$     165,000	25.0%
Common Fixed Expenses	$      132,000	15.0%
Net Operating Income	$      101,200	11.5%