Raner, Harris, & Chan is a consulting firm that specializes in information syste
ID: 2470805 • 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: Office Total Company Chicago Minneapolis Sales $ 1,125,000 100.0 % $ 225,000 100 % $ 900,000 100 % Variable expenses 607,500 54.0 % 67,500 30 % 540,000 60 % Contribution margin 517,500 46.0 % 157,500 70 % 360,000 40 % Traceable fixed expenses 252,000 22.4 % 117,000 52 % 135,000 15 % Office segment margin 265,500 23.6 % $ 40,500 18 % $ 225,000 25 % Common fixed expenses not traceable to offices 180,000 16.0 % Net operating income $ 85,500 7.6 % 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.) 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.) 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
Explanation / Answer
1
Calculation of companywide break-even point in dollar sales:
Traceable fixed expenses
$ 252,000
Common fixed expenses
$ 180,000
Total fixed expenses
$ 432,000
Contribution Margin Ratio
46.00%
Companywide break-even point in dollar sales= (432000/46%)
$ 939,130
2
Calculation of break-even point for the Chicago office and for the Minneapolis office:
Chicago office
Minneapolis office
Total
Traceable fixed expenses (A)
$ 117,000
$ 135,000
Contribution Margin Ratio (B)
70.00%
40.00%
Break-even point (A/B)
$ 167,143
$ 337,500
$504,643
3
Companywide break-even point
$ 939,130
Sum of the Chicago and Minneapolis break-even points
$ 504,643
Companywide break-even point is greater than the sum of the Chicago and Minneapolis break-even points
1
Calculation of companywide break-even point in dollar sales:
Traceable fixed expenses
$ 252,000
Common fixed expenses
$ 180,000
Total fixed expenses
$ 432,000
Contribution Margin Ratio
46.00%
Companywide break-even point in dollar sales= (432000/46%)
$ 939,130
2
Calculation of break-even point for the Chicago office and for the Minneapolis office:
Chicago office
Minneapolis office
Total
Traceable fixed expenses (A)
$ 117,000
$ 135,000
Contribution Margin Ratio (B)
70.00%
40.00%
Break-even point (A/B)
$ 167,143
$ 337,500
$504,643
3
Companywide break-even point
$ 939,130
Sum of the Chicago and Minneapolis break-even points
$ 504,643
Companywide break-even point is greater than the sum of the Chicago and Minneapolis break-even points
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