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 income statement for the company's most recent year is given below:
Office
Total Company Chicago Minneapolis
Sales $975,000 100% $195,000 100% $780,000 100%
Variable expenses
526,500
54%
58,500
30%
468,000
60%
Contribution margin 448,500 46% 136,500 70% 312,000 40%
Traceable fixed expenses
218,400
22%
101,400
52%
117,000
15%
Office segment margin 230,100 24%
$35,100
18%
$195,000
25%
Common fixed expenses not traceable to offices 156,000 16%
Net operating income
$74,100
8%
Requirement 1: By how much would the company's net operating income increase if Minneapolis increased its sales by $97,500 per year? Assume no change in cost behavior patterns.
Requirement 2: Refer to the original data. Assume that sales in Chicago increase by $65,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs. Prepare a new segmented income statement for the company.