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	$	900,000		100.0	%		$	180,000		100	%		$	720,000		100	%
Variable expenses		486,000		54.0	%			54,000		30	%			432,000		60	%
Contribution margin		414,000		46.0	%			126,000		70	%			288,000		40	%
Traceable fixed expenses		201,600		22.4	%			93,600		52	%			108,000		15	%
Office segment margin		212,400		23.6	%		$	32,400		18	%		$	180,000		25	%
Common fixed expenses not traceable to offices		144,000		16.0	%
Net operating income	$	68,400		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?

2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $90,000 per year? Assume no change in cost behavior patterns.

3. Assume that sales in Chicago increase by $60,000 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