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:
2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $82,500 per year? Assume no change in cost behavior patterns.
| 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
calculation of net operating income when sales would be increased by $82500 per year -
Note - Variable cost will be vary accordingly last year as last year minneapolis variable expenses was 60% on sales so variable expenses will remain same as 60%.
fixed cost remain same in absolute terms 99000 as was in last year because fixed expenses does not change according to prduction.
so the profit would be increased by 95700 - 62700 = 33000
Please note all values arein $.
In case of any clarification required please comment.
| Office | ||||||
| Chicago | % | Minneapolis | Total | |||
| Sales | 165000 | 100% | 742500 | 100% | 907500 | 100% |
| variable cost | 49500 | 30% | 445500 | 60% | 495000 | 55% |
| Contribution | 115500 | 70% | 297000 | 40% | 412500 | 45% |
| traceable fixed expenses | 85800 | 52% | 99000 | 13% | 184800 | 20% |
| office segment margin | 29700 | 18% | 198000 | 27% | 227700 | 25% |
| Common fixed exp | 132000 | 15% | ||||
| Net operating income | 95700 |
