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 Dental Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Common fixed expenses not traceable to markets Office segment margin $300,000 100% 100% 52% 48% 21% 27% $200,000 100% 64% 368 12,00068 $100,000 120,0000128,000 72,000 33,000 87,000 15,000 $ 72,000 40% 11% 29% 5 24% 48,000 21,000 30% $ 27,000 $ 60,000 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?

Explanation / Answer

1 Medical market=(40000*36%)-5000= 9400 2 Dental market=(35000*48%)-5000= 11800 3 Dental market

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