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	$	492,000		100	%		$	171,000		100	%		$	321,000		1	%
Variable expenses		253,000		50	%			59,000		30	%			192,600		60	%
Contribution margin		239,000		50	%			112,000		70	%			128,400		40	%
Traceable fixed expenses		131,600		28	%			80,800		52	%			51,360		16	%
Office segment margin		107,400		22	%		$	31,200		18	%		$	77,040		24	%
Common fixed expenses not traceable to offices		70,000		14	%
Net operating income	$	37,400		8	%

rev: 06_09_2020_QC_CS-215744

3. Assume that sales in Chicago increase by $57,000 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.

Answer 1

3)
					office
			Total company		Chicago		Minneapolis
Sales			549,000	100%	228000	100.0%	321,000	100.0%
Variable expense			261,000	47.5%	68400	30.0%	192,600	60.0%
contribution margin			288,000	52.5%	159600	70.0%	128,400	40.0%
traceable fixed expense			132,160	24.1%	80,800	35.4%	51,360	16.0%
office segment margin			155,840	28.4%	78,800	34.6%	77,040	24.0%
common fixed cost not traceable			70,000	12.8%
net operating income			85,840	15.6%