3 Required information Part 2 of 3 The following information applies to the ques
ID: 2542445 • Letter: 3
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3 Required information Part 2 of 3 The following information applies to the questions displayed below) Raner, Harris & Chan is a consulting firm that specializes in information systems for medical two offices-one in Chicago and one in Minneapolis. The firm classifies the costs. A contributio direct costs of consulting jobs as variable n format segmented income statement for the company's most recent year is given points Office Total Company Chicaro Minneapolis $862 ,588 1ee.0% $172,500 iees $698 ieee 100% eBook Print Rederences Sales Variable expenses Contribution margin Traceable fixed expenses Office segnent nargin Common fixed expenses not traceable to offices Net operating incone 414,08e 276,808 183,580 172,500 60% 40% 15% 51,750 758 38% 78% 465,750 396,759 193,200 203,sse 138,eee 54.8% 46.0% 22.4% 23.6% 16.8% 7.6% 128,758 89,286 31,ese 52% 18% $ $ 65,sse he company's net operating income increase if Minneapolis increased its sales by $86.250 per year? Assume no change in cost behavior patterns. 34 4 Next > Mc K PrevExplanation / Answer
Answer:-$86250* 40% CM ratio = $ 34500 increased contribution margin in Minneapolis. Since the fixed costs in the office and in the company as a whole will not change, the entire $ 30,000would result in increased net operating income for the company.
It is not correct to multiply the $ 87500 increase in sales by Minneapolis' 25% segment margin ratio. The approach assumes that the segment's traceable fixed expenses increase in proportion to sales, but is they did, they would not be fixed.
The company net operating income would increase by $34500.
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