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.
Assume that Minneapolis' sales by major market are as follows:
|
|
|
Market |
|
Minneapolis |
Medical |
Dental |
| Sales |
$480,000 |
100% |
$320,000 |
100% |
$160,000 |
100% |
| Variable expenses |
288,000
|
60%
|
208,000
|
65%
|
80,000
|
50%
|
| Contribution margin |
192,000 |
40% |
112,000 |
35% |
80,000 |
50% |
| Traceable fixed expenses |
57,600
|
12%
|
16,000
|
5%
|
41,600
|
26%
|
| Market segment margin |
134,400 |
28% |
$96,000
|
30%
|
$38,400
|
24%
|
Common fixed expenses
not traceable to markets |
14,400 |
3% |
|
|
|
|
| Office segment margin |
$120,000
|
25%
|
|
|
|
|
|
|
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 $6,400.Marketing studies indicate that such a campaign would increase sales in the Medical market by $56,000 or increase sales in the Dental market by $48,000.
|
| Required: |
|
Determine the increase in net operating income in each market if the advertising campaign were to be initiated in that market.
|
Can somebody please answer and show how the answer was gotten so I can go back and figure out where I went wrong, that would be great!