Homework SourseRaner Harris Chan is a consulting firm that specializes in
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:
Required:
1-a. Compute the companywide break-even point in dollar sales. (Round \"CM ratio\" to 2 decimal places and final answers 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?
| Office | |||||||||||||||||
| Total Company | Chicago | Minneapolis | |||||||||||||||
| Sales | $ | 825,000 | 100.0 | % | $ | 165,000 | 100 | % | $ | 660,000 | 100 | % | |||||
| Variable expenses | 445,500 | 54.0 | % | 49,500 | 30 | % | 396,000 | 60 | % | ||||||||
| Contribution margin | 379,500 | 46.0 | % | 115,500 | 70 | % | 264,000 | 40 | % | ||||||||
| Traceable fixed expenses | 184,800 | 22.4 | % | 85,800 | 52 | % | 99,000 | 15 | % | ||||||||
| Office segment margin | 194,700 | 23.6 | % | $ | 29,700 | 18 | % | $ | 165,000 | 25 | % | ||||||
| Common fixed expenses not traceable to offices | 132,000 | 16.0 | % | ||||||||||||||
| Net operating income | $ | 62,700 | 7.6 | % | |||||||||||||
Solution
Company
Chicago
Minneapolis
Total
Fixed Cost
$ 316,800
$ 85,800
$ 99,000
CM Ratio
46%
70%
40%
Break even in Dollars
$ 688,696
$ 122,571
$ 247,500
$ 370,071
Explanation:
1.
Breakeven point in sales dollar = Total fixed expense/Contribution margin ratio
Total Fixed cost for Raner, Harris & Chan company = Traceable fixed expenses + Common fixed expenses not traceable to offices
= $ 184,800 + 132,000 = $ 316,800
CM ratio = 46 %
Breakeven point in sales dollar for total company = $ 316,800/40 %
= $ 316,800/0.4
= $ 688,695.65 or $ 688,696
2.
Fixed cost for Chicago office = $ 85,800
CM ratio = 70 %
Breakeven point in sales dollar Chicago office = $ 85,800/70 %
= $ 85,800/0.7 %
= $ 122,571.43 or $ 122,571
Fixed cost for Minneapolis office = $ 99,000
CM ratio = 40 %
Breakeven point in sales dollar Minneapolis office = $ 99,000/40 %
= $ 99,000/0.4
= $ 247,500
Sum of Chicago and Minneapolis breakeven point = $ 122,571 + $ 247,500
= $ 370,071
3. Companywide break-even is greater than the sum of the Chicago and Minneapolis break-even points as Companywide break-even consider overall fixed expenses.
| Company | Chicago | Minneapolis | Total | |
| Fixed Cost | $ 316,800 | $ 85,800 | $ 99,000 | |
| CM Ratio | 46% | 70% | 40% | |
| Break even in Dollars | $ 688,696 | $ 122,571 | $ 247,500 | $ 370,071 |
