Raner, Harris & Chan is a consulting firm that specializes in information system

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 giver Assume that Minneapolis' sales by major market are Market Minneapolis Medical Dental Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Common fixed expenses not traceable to markets Office segment margin $57e, eee 342,eee 228,000 68,400 159,600 100% 68% 48% 12% 28% $380,eee 247,088 133,088 19,000 $114, eee 100% 65% 35% 5% 39% $190,eee 95,000 95,000 49,400 $.45 , 6ee 100% 58% 50% 26% 24% 17,100 $142,500 3% 25% The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $7,600. Marketing studies indicate that such a campaign would increase sales in the Medical market by $66,500 or increase sales in the Dental market by $57,000 Required 1. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? 2. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Dental Market? 3. In which of the markets would you recommend that the company focus its advertising campaign?

Explanation / Answer

1 Change in profits = (66500*35%)-7600= 15675 Increase 2 Change in profits = (57000*50%)-7600= 20900 Increase 3 Dental market

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