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	$	675,000		100.0	%		$	135,000		100	%		$	540,000		100	%
Variable expenses		364,500		54.0	%			40,500		30	%			324,000		60	%
Contribution margin		310,500		46.0	%			94,500		70	%			216,000		40	%
Traceable fixed expenses		151,200		22.4	%			70,200		52	%			81,000		15	%
Office segment margin		159,300		23.6	%		$	24,300		18	%		$	135,000		25	%
Common fixed expenses not traceable to offices		108,000		16.0	%
Net operating income	$	51,300		7.6	%

Exercise 7-16 Part 1

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

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	$	675,000		100.0	%		$	135,000		100	%		$	540,000		100	%
Variable expenses		364,500		54.0	%			40,500		30	%			324,000		60	%
Contribution margin		310,500		46.0	%			94,500		70	%			216,000		40	%
Traceable fixed expenses		151,200		22.4	%			70,200		52	%			81,000		15	%
Office segment margin		159,300		23.6	%		$	24,300		18	%		$	135,000		25	%
Common fixed expenses not traceable to offices		108,000		16.0	%
Net operating income	$	51,300		7.6	%

Exercise 7-16 Part 2

2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $67,500 per year? Assume no change in cost behavior patterns.

Answer 1