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:

Office Total Company Chicago Minneapolis

Sales $ 487,500 100.0 % $ 97,500 100 % $ 390,000 100 %

Variable expenses 263,250 54.0 % 29,250 30 % 234,000 60 %

Contribution margin 224,250 46.0 % 68,250 70 % 156,000 40 %

Traceable fixed expenses 109,200 22.4 % 50,700 52 % 58,500 15 %

Office segment margin 115,050 23.6 % $ 17,550 18 % $ 97,500 25 %

Common fixed expenses not traceable to offices 78,000 16.0 %

Net operating income $ 37,050 7.6 %

3. Assume that sales in Chicago increase by $32,500 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. 0.1234 should be entered as 12.3).)

Explanation / Answer

segment Income statement Total Chicago Minneapolis sales 520000 100% 97500+32500=130000 100% 390000 100% variable expense (273000) (52.5)% (39000) [130000*.30] (30%) (234000) [390000*.60] (60%) contribution margin 247000 47.5% 91000 70%`` 156000 40% Traceable fixed expenses (109200) (21%) (50700) (39%) (58500) (15%) segment margin 137800 26.5% 40300 31% 97500 25% lesS:common fixed cost (78000) (15%) net operating income 59800 11.5%

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