Raner, Harris, & Chan is a consulting firm that specializes in information syste

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.

Market

  Common fixed expenses
        not traceable to markets

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 $9,200. Marketing studies indicate that such a campaign would increase sales in the Medical market by $80,500 or increase sales in the Dental market by $69,000.

Calculate the increased segment margin.

In which of the markets would you recommend that the company focus its advertising campaign?

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.

Explanation / Answer

Segment Margin = Segment Revenues – Variable Costs – Avoidable Fixed Costs

Given market segment margin for

Medical

= 138,000 $

Dental

= 55,200 $

For the new market, cost of advertising is $ 9,200

Also given, marketing studies indicate that such a campaign would increase sales

- Medical market by $80,500

- Dental market by $69,000.

Now,

new segment margin for medical

Segment Margin = Segment Revenues – Variable Costs – Avoidable Fixed Costs

SM = SR - V - F

change in SM = dSM

dSM = dSR - dV - dF

Increased segment margin , dSM = 80500 - 9200 = 71300

for , dental

Increased segment margin, dSM = 69000 - 9200 = 59800

for medical new % of segment margin = (138,000+71300)*100 / (460,000+80500) = 38.72%

for dental new % of segment margin = (55200+59800)*100/(230000+69000) = 38.46%

But % change for medical = 38.72-30 = 8.72%

% change for dental = 38.46-24 = 14.46%

Since change in percentage is higher in dental, we can choose this

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.