Question

In: Accounting

Required information [The following information applies to the questions displayed below.]    Raner, Harris & Chan...

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?

Solutions

Expert Solution

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.

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Thanks


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