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. 1-b. Compute the break-even point for the Chicago office and for the Minneapolis office. 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?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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.
1-b. Compute the break-even point for the Chicago office and for the Minneapolis office.
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?
2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $52,500 per year? Assume no change in cost behavior patterns.
3. Assume that sales in Chicago increase by $35,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs.
a. Prepare a new segmented income statement for the company. (Round your percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3).)
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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:
Office
Minneapolis
Total Company
$ 525,000
283,500
241, 500
117,600
Chicago
100.0%
54.0%
$ 420,000
$ 105,000
100%
Sales
Variable expenses
Contribution margin
Traceable fixed expenses
100%
60%
40%
15%
31,500
30%
252,000
168,000
63,000
46.0%
73,500
70%
22.4%
54,600
52%
office segment margin
123,900
23.6%
2$
18,900
18%
$ 105,000
25%
Common fixed expenses not traceable to offices
16.0%
84,000
2$
Net operating income
39,900
7.6%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcdfab4a7-28d0-498e-bd8c-96d47e385f7f%2F90304851-8dd5-416d-9ffc-2dfe8123ddf6%2F0rzc6t_processed.jpeg&w=3840&q=75)
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