In: Accounting
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 | $ | 637,500 | 100.0 | % | $ | 127,500 | 100 | % | $ | 510,000 | 100 | % | |||||
Variable expenses | 344,250 | 54.0 | % | 38,250 | 30 | % | 306,000 | 60 | % | ||||||||
Contribution margin | 293,250 | 46.0 | % | 89,250 | 70 | % | 204,000 | 40 | % | ||||||||
Traceable fixed expenses | 142,800 | 22.4 | % | 66,300 | 52 | % | 76,500 | 15 | % | ||||||||
Office segment margin | 150,450 | 23.6 | % | $ | 22,950 | 18 | % | $ | 127,500 | 25 | % | ||||||
Common fixed expenses not traceable to offices | 102,000 | 16.0 | % | ||||||||||||||
Net operating income | $ | 48,450 | 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?
1-a) Traceable fixed expenses of company = $ 142,800
Common fixed expenses of company = $ 102,000
Total fixed expenses of company = Traceable fixed expenses of company + Common fixed expenses of company
= 142,800 + 102,000
= $ 244,800
company wide break-even point in dollar sales = Total fixed expenses of company / Contribution margin ratio of company
= 244,800 / 46%
= $ 532,174
1-b) Break-even point for the Chicago office = Traceable fixed expenses of Chicago office / Contribution margin ratio of Chicago office
= 66,300 / 70%
= $ 94,714
Break-even point for the Minneapolis office = Traceable fixed expenses of Minneapolis office / Contribution margin ratio of Minneapolis office
= 76,500 / 40%
= $ 191,250
1-c) Sum of Break-even point for the Chicago office and Break-even point for the Minneapolis office
= 94,714 + 191,250
= $ 285,964
company wide break-even point is greater than sum of Chicago office and Minneapolis office Break Even point.
Kindly give a positive rating if you are satisfied with this solution and please ask if you have any query.
Thanks