Raner, Harris, & Chan is a consulting firm that specializes in information syste
ID: 2376175 • 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.
288,000
60%
208,000
65%
80,000
50%
57,600
12%
16,000
5%
41,600
26%
$96,000
30%
$38,400
24%
$120,000
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 $6,400. Marketing studies indicate that such a campaign would increase sales in the Medical market by $56,000 or increase sales in the Dental market by $48,000.
Determine the increase in net operating income in each market if the advertising campaign were to be initiated in that market. (Omit the "$" sign in your response.)
Assume that Minneapolis' sales by major market are as follows:Market Minneapolis Medical Dental Sales $480,000 100% $320,000 100% $160,000 100% Variable expenses
288,000
60%
208,000
65%
80,000
50%
Contribution margin 192,000 40% 112,000 35% 80,000 50% Traceable fixed expenses57,600
12%
16,000
5%
41,600
26%
Market segment margin 134,400 28%$96,000
30%
$38,400
24%
Common fixed expensesnot traceable to markets 14,400 3% Office segment margin
$120,000
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 $6,400. Marketing studies indicate that such a campaign would increase sales in the Medical market by $56,000 or increase sales in the Dental market by $48,000.
Required:
Determine the increase in net operating income in each market if the advertising campaign were to be initiated in that market. (Omit the "$" sign in your response.)
Medical Dental Increase in net operating income $ $
**Can somebody please answer and show how the answer was gotten so I can go back and figure out where I went wrong, that would be great!
Explanation / Answer
Hi,
Please find the revised answers below:
Hi,
Please find the answer as follows:
You need to simply calculate the contribution margin (for the increased sales) based on the %s given in the table above and deduct marketing campaign cost to get the incremental income.
Medical = 56000*(.35) - 6400 (Marketing Campaign Cost) = 13200
Dental = 48000*(.50) - 6400 (Marketing Campaign Cost) = 10400
Note:
Common fixed expenses not traceable to markets have no relevance in the calculation of incremenatal operating income.
Traceable fixed expenses are not required to be adjusted.
Medical Dental Increase in net operating income 13200 10400
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