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 given Assume that Minneapolis' sales by major market are Market Minneapolis Medical Denta1 Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Common fixed expenses not traceable to markets Office segment margin $300,000 180,000 120,000 33,000 87,000 15,000 $ 72,000 1008 60 $200,000 128,000 72,000 12,000 29% $ 60,000 1008 64 % 36% 6% $100,000 52,000 100% 52% 48% 40% 11% 48,000 21,000218- 308 $ 27,000 27% 24% 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 $5,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,000 or increase sales in the Dental market by $35,000 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? Complete this question by entering your answers in the tabs below Required 1 Required 2 Required3 How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? mpany's profits by

Explanation / Answer

1 Medical Marketing: A Contribution Margin Ratio 36% B Incremental Sales 40000 A*B Incremental Contribution Margin 14400 Less: Incremental Costs 5000 Net Increase in Profits 9400 2 Dental Marketing: A Contribution Margin Ratio 48% B Incremental Sales 35000 A*B Incremental Contribution Margin 16800 Less: Incremental Costs 5000 Net Increase in Profits 11800 3 Since the Increase in profit is more in Dental Marketing. Company should run Advertsing Compaign thr

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