Raner, Harris, & Chan is a consulting firm that specializes in information syste
ID: 2459875 • Letter: R
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 below: Office Total Company Chicago Minneapolis Sales $ 862,500 100.0 % $ 172,500 100 % $ 690,000 100 % Variable expenses 465,750 54.0 % 51,750 30 % 414,000 60 % Contribution margin 396,750 46.0 % 120,750 70 % 276,000 40 % Traceable fixed expenses 193,200 22.4 % 89,700 52 % 103,500 15 % Office segment margin 203,550 23.6 % $ 31,050 18 % $ 172,500 25 % Common fixed expenses not traceable to offices 138,000 16.0 % Net operating income $ 65,550 7.6 % 5.value: 10.00 pointsRequired information Required: 1-a. 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.) 1-b. 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.) 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? Greater than Less than Equal to ReferenceseBook & Resources WorksheetLearning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions. Difficulty: 1 EasyLearning Objective: 06-05 Compute companywide and segment break-even points for a company with traceable fixed costs. Check my work 6.value: 10.00 pointsRequired information 2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $86,250 per year? Assume no change in cost behavior patterns. ReferenceseBook & Resources WorksheetLearning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions. Difficulty: 1 EasyLearning Objective: 06-05 Compute companywide and segment break-even points for a company with traceable fixed costs. Check my work 7.value: 10.00 pointsRequired information 3. Refer to the original data. Assume that sales in Chicago increase by $57,500 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 .1234 should be entered as 12.3))
Explanation / Answer
Total Company Chicago Minneapolis sales 862500 172500 690000 variable expenses 465750 51750 414000 contribution margin 396750 120750 276000 traceable fixed expenses 193200 89700 103500 office segment margin 203550 31050 172500 common fixed expenses 138000 net operating income 65550 a) Company wide break even point in dollars: Overall contribution margin ratio = 396750/862500= 46.00% Company wide break even in dollar sales = (193200+138000)/0.46 = $720,000 b) Office wise break even point: Chicago Office: Contribution margin ratio = 120750/172500 = 0.70 = 70.00% BEP in dollar sales = 89700/0.7 = $128,143 Minneapolis Office: Contribution margin ratio = 276000/690000 = 0.40 = 40.00% BEP in dollar sales = 103500/0.4 = $258,750 c) The company wide BEP is greater than the sum of the BEP of the two ofices: 720000 > 386,893 (128143+258750) d) Increase in Minneapolis sales by $86250: Increase in company's net income = 86250*0.4 = $ 34500 e) Chicago sales increases by $57500, Minneapolis remains the same: The new segmented income statement would appear as under: Total Company Chicago Minneapolis sales 920000 230000 690000 variable expenses 483000 69000 414000 contribution margin 437000 161000 276000 traceable fixed expenses 193200 89700 103500 office segment margin 243800 71300 172500 common fixed expenses 138000 net operating income 105800
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