Raner, Harris, & Chan is a consulting firm that specializes in information syste
ID: 2474146 • 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:
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.)
Break-even point in dollar sales
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.)
Break-even Point
Chicago office
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?
Greater than
Less than
Equal to
2.
By how much would the company’s net operating income increase if Minneapolis increased its sales by $41,250 per year? Assume no change in cost behavior patterns.
Net operating income increase
3.
Refer to the original data. Assume that sales in Chicago increase by $27,500 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))
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:
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 Minneapolis Chicago 24,750 30% 198,000 60% 57750 70% $ 412,500 100.0% $ 82,500 100% $330,000 100% Sales Variable expenses 222,750 54.0% Contribution margin Traceable fixed expenses 189,750 46.0% 92.400 22.4% 132,000 40% 49,500 15% 42.900 52% Office segment margin 97,350 23.6% $ 14.850 18% $82,500 25% Common fixed expenses not traceable to offices 66,000 16.0% Net operating income $31,350 75% value 2.50 points 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.) Break-even point in dollar salesExplanation / Answer
Answer:
(1 a)
Break-even point in dollar sales (companywide) = Total fixed costs / Contribution Margin
= 92,400 + 66,000 / 46.00% = $344,348
(1 b)
Break-even point in dollar sales (Chicago) = Total fixed costs / Contribution Margin
= 42,900 / 70% = $61,286
Break-even point in dollar sales (Chicago) = Total fixed costs / Contribution Margin
= 49,500 / 40% = $123,750
(1 c)
Companywide break-even point greater than $159,312(344,348 - 61,286 - 123,750) to the sum of the Chicago and Minneapolis break-even points.
(2)
Company’s net operating income increase = Increase in contribution for new sales of Minneapolis = $41,250 * 40% = %16,500
(3)
Total Company Chicago Minneapolis Amount $ Percentage Amount $ Percentage Amount $ Percentage Sales 440,000 100.0% 110,000 100.0% 330,000 100.0% Variable expenses 231,000 52.5% 33,000 30.0% 198,000 60.0% Contribution margin 209,000 47.5% 77,000 70.0% 132,000 40.0% Traceble fixed expenses 92,400 21.0% 42,900 39.0% 49,500 15.0% Office Segment margin 116,600 26.5% 34,100 31.0% 82,500 25.0% Common fixed expenses not traceble 66,000 15.0% Net operating income 50,600 11.5%Related Questions
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