Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 7, Problem 16E
Working with a Segmented Income Statement; Break-Even Analysis L07—4, L07—5
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. Compute the companywide break-even point in dollar sales. Also, compute the break-even point for the Chicago office and for the Minneapolis office. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points? Why?
2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $75,000 per year? Assume no change in cost behavior patterns.
3. Refer to the original data. Assume that sales in Chicago increase by $50,000 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 using the above format. Show both amounts and percentages.
b. Observe from the income statement you have prepared that the contribution margin ratio for Chicago has remained unchanged at 70% (the same as in the above data) but that the segment margin ratio has changed. How do you explain the change in the segment margin ratio?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Required information
[The following information applies to the questions displayed below.]
Raner, Harris and 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:
Sales
Variable expenses
Contribution margin
Traceable fixed expenses
Office segment margin
Common fixed expenses not traceable
to offices
Net operating income
Total Company
$ 454,500
227,250
227,250
127,260
99,990
63,630
$ 36,360
100.00%
50.00%
50.00%
28.00%
22.00%
14.00%
8.00%
Chicago
$ 151,500
45,450
106,050
78,780
$ 27,270
Office
100.00%
30.00%
70.00%
52.00%
18.00%
Minneapolis
$ 303,000
181,800
121,200
48,480
$ 72,720
100.00%
60.00%
40.00%
16.00%
24.00%
3. Assume that sales in Chicago increase by $50,500 next year and that sales in Minneapolis remain…
Required information
[The following information applies to the questions displayed below.]
Raner, Harris and Chan is a consulting firm specializing in information systems for medical and dental clinics.
The firm has two offices-one in Chicago and one in Minneapolis. It 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 below:
Sales
Variable expenses
Contribution margin
Traceable fixed expenses
Office segment margin
Common fixed expenses not traceable
to offices
Net operating income
Total Company
Net operating income increase
$ 468,000
234,000
234,000
131,040
102,960
65,520
$ 37,440
100.00%
50.00%
50.00%
28.00%
22.00%
14.00%
8.00%
Chicago
$ 156,000
46,800
109, 200
81,120
$ 28,080
Office
100.00%
30.00%
70.00%
52.00%
18.00%
Minneapolis
$ 312,000
187, 200
124,800
49,920
$ 74,880
100.00%
60.00%
40.00%
16.00%
24.00%
2. How much would the company's net operating income increase if…
Required information
[The following information applies to the questions displayed below.]
Raner, Harris and 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:
Sales
Variable expenses
Contribution margin
Traceable fixed expenses
office segment margin
Common fixed expenses not traceable to
offices
Net operating income
Total Company
$ 477,000
238,500
238,500
133,560
104,940
66,780
$38,160
100.00%
50.00%
50.00%
28.00%
22.00%
14.00%
8.00%
Chicago
$ 159,000
47,700
111,300
82,680
$ 28,620
Office
100.00%
30.00%
70.00%
52.00%
18.00 %
Minneapolis
$318,000
190,800
127, 200
50,880
$ 76,320
100.00%
60.00%
40.00%
16.00%
24.00%
Required:
1-a. Compute the companywide break-even point in dollar sales.
1-b. Compute the…
Chapter 7 Solutions
Introduction To Managerial Accounting
Ch. 7 - What is the difference between absorption costing...Ch. 7 - Are selling and administrative expenses treated as...Ch. 7 - Explain how fixed manufacturing overhead costs are...Ch. 7 - What are the arguments in favor of treating fixed...Ch. 7 - What are the arguments in favor of treating fixed...Ch. 7 - Prob. 6QCh. 7 - If the units produced exceed the units sold, which...Ch. 7 - Prob. 8QCh. 7 - Prob. 9QCh. 7 - How does Lean Production reduce or eliminate the...
Ch. 7 - Prob. 11QCh. 7 - Prob. 12QCh. 7 - Distinguish between a traceable fixed cost and a...Ch. 7 - Explain how the contribution margin differs from...Ch. 7 - Why aren’t common fixed costs allocated to...Ch. 7 - How is it possible for a fixed cost that ¡s...Ch. 7 - Should a company allocate its common fixed costs...Ch. 7 - Prob. 1AECh. 7 - Prob. 2AECh. 7 - Prob. 3AECh. 7 - Diego Company manufactures one product that is...Ch. 7 - Prob. 2F15Ch. 7 - Prob. 3F15Ch. 7 - Prob. 4F15Ch. 7 - Diego Company manufactures one product that is...Ch. 7 - Prob. 6F15Ch. 7 - Diego Company manufactures one product that is...Ch. 7 - Prob. 8F15Ch. 7 - Diego Company manufactures one product that is...Ch. 7 - Prob. 10F15Ch. 7 - Prob. 11F15Ch. 7 - Prob. 12F15Ch. 7 - Prob. 13F15Ch. 7 - Diego Company manufactures one product that is...Ch. 7 - Diego Company manufactures one product that is...Ch. 7 - Prob. 1ECh. 7 - Variable Costing Income Statement; Explanation of...Ch. 7 - Reconciliation of Absorption and Variable Costing...Ch. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - Prob. 7ECh. 7 - Deducing Changes ¡n Inventories LO7—3 Parker...Ch. 7 - Variable and Absorption Costing Unit Product Costs...Ch. 7 - Prob. 10ECh. 7 - Segmented Income Statement L07—4 Wingate Company,...Ch. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Variable Costing Unit Product Cost and Income...Ch. 7 - Absorption Costing Unit Product Cost and Income...Ch. 7 - Working with a Segmented Income Statement;...Ch. 7 - Prob. 17ECh. 7 - Prob. 18PCh. 7 - Variable Costing Income Statement; Reconciliation...Ch. 7 - Variable and Absorption Costing Unit Product Costs...Ch. 7 - Segment Reporting and Decision-Making L07—4 Vulcan...Ch. 7 - Prob. 22PCh. 7 - Absorption and Variable Costing; Production...Ch. 7 - Companywide and Segment Break-Even Analysis;...Ch. 7 - Prepare and Interpret Income Statements; Changes...Ch. 7 - Prob. 26PCh. 7 - Variable and Absorption Costing Unit Product Costs...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Required information [The following information applies to the questions displayed below.] Raner, Harris and 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 Sales Variable expenses Contribution margin Traceable fixed expenses office segment margin Common fixed expenses not traceable to offices Net operating income i Total Company $ 495,000 247,500 247,500 138,600 108,900 69,300 $ 39,600 100.00% 50.00% 50.00% 28.00% 22.008 14.00% 8.00% Chicago $ 165,000 49,500 115,500 85,800 $ 29,700 100.00% 30.00% 70.00% 52.00 18.00% Minneapolis $ 330,000 198,000 132,000 52,800 $ 79,200 100.00% 60.00% 40.00% 16.00 24.00% 3. Assume that sales in Chicago increase by $55,000 next year and that sales in Minneapolis remain…arrow_forward! Required information [The following information applies to the questions displayed below.] Raner, Harris and 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: Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income Total Company Net operating income increase $ 463,500 231,750 231,750 129,780 101,970 64,890 $ 37,080 100.00% 50.00% 50.00% 28.00% 22.00% 14.00% 8.00% Chicago $ 154,500 46,350 108,150 80, 340 $ 27,810 Office 100.00% 30.00% 70.00% 52.00% 18.00% Minneapolis $ 309,000 185,400 123,600 49,440 $ 74,160 100.00% 60.00% 40.00% 16.00% 24.00% 2. By how much would the company's net operating income increase…arrow_forwardRequired information [The following information applies to the questions displayed below.] 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 Total Company 100.0% 54.0% 46.0% 22.4% Minneapolis $ 420,000 252,000 168,000 63,000 $ 105,000 Chicago $ 105,000 $ 525,000 283,500 Sales 100% 100% Variable expenses Contribution margin Traceable fixed expenses 30% 60% 40% 15% 31,500 73,500 54,600 18,900 70% 241,500 117,600 52% Office segment margin 123,900 23.6% 18% 25% Common fixed expenses not traceable to offices 84,000 16.0% Net operating income 39,900 7.6% 3. Assume that sales in Chicago increase by $35,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed…arrow_forward
- Working with a Segmented Income Statement; Break-Even Analysis 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. Compute the companywide break-even point in dollar sales. Also, compute the break-even point for the Chicago office and for the Minneapolis office. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points? Why? 2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $75,000 per year? Assume no change in cost behavior patterns. 3. Refer to the original data. Assume that sales in Chicago increase by 550,000 next year and that sales in Minneapolis remain…arrow_forwardRequired information (The following information applies to the questions displayed below.] 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 Total Company $ 513,000 Sales Variable expenses Contribution margin Traceable fixed expenses 100.00% 50.00% 50.00% Chicago $ 171,000 51, 300 119, 700 88,920 Minneapolis 100.00% 60.00 40.00% 16.00% $ 342,000 100.00% 30.00% 70.00% 52.00% 256, 500 205, 200 136,800 54,720 $ 82,080 256, 500 143,640 28.00% Office segment margin $ 30,780 112,860 22.00% 18.00% 24.00% Common fixed expenses not traceable to offices 71,820 $ 41,040 14.00% Net operating income 8.00% 2. By how much would the company's net operating income increase if Minneapolis increased its…arrow_forwardRequired information SB Exercise 6-16 through Exercise 6-17 (Static) [The following information applies to the questions displayed below.] Raner, Harris and Chan is a consulting firm specializing in information systems for medical and dental clinics. The firm has two offices-one in Chicago and one in Minneapolis. It 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 below: Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income Total Company $ 450,000 225,000 225,000 126,000 99,000 63,000 $ 36,000 100% 50% 50% 28% 22% 14% 8% 2010 Chicago $ 150,000 45,000 105,000 78,000 $ 27,000 Office 100% 30% 70% 52% 18% Minneapolis $ 300,000 180,000 120,000 48,000 $ 72,000 100% 60% 40% 16% 24%arrow_forward
- Requlred Information [The following Information applies to the questions displayed below.] Raner, Harris & Chan Is a consulting firm that speclalizes In Information systems for medical and dental clinics. The firm has two offices-one In Chicago and one In Minneapolls. The firm classifies the direct costs of consulting Jobs as varlable costs. A contribution format segmented Income statement for the company's most recent year is glven: Office Minneapolis $ 420, e00 252,000 168,e00 63, e00 $ 105,e00 Total Company Sales variable expenses Contribution margin Traceable fixed expenses Chicago $ 185,e00 31,500 73,500 54,600 $ 525,e00 100.e% 1ee% 100% 283,500 54.e% 30% 6e% 241,500 117,600 123,9ee 46.0% 70% 40% 22.4% 52% 15% Office segment margin 23.6% 24 18,9ee 18% 25% Common fixed expenses not traceable to offices 84, eee 16.0% Net operating income 24 39,900 7.6% Requlred: 1-a. Compute the companywlde break-even polnt In dollar sales. 1-b. Compute the break-even polnt for the Chicago office…arrow_forwardSB Exercise 6-16 through Exercise 6-17 (Algo) [The following information applies to the questions displayed below.] Raner, Harris and Chan is a consulting firm specializing in information systems for medical and dental clinics. The firm has two offices-one in Chicago and one in Minneapolis. It 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 below: Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating ome Total Company $ 531,000 265,500 265,500 148,680 116,820 Net operating income increase 74,340 $ 42,480 100.00% 50.00% 50.00% 28.00% 22.00% 14.00% 8.00% 100.00% 60.00% 40.00% 16.00% 24.00%arrow_forwardRequired information SB Exercise 6-16 through Exercise 6-17 (Algo) Skip to question [The following information applies to the questions displayed below.] 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 Total Company Chicago Minneapolis Sales $ 504,000 100 % $ 177,000 100 % $ 327,000 1 % Variable expenses 261,000 50 % 63,000 30 % 196,200 60 % Contribution margin 243,000 50 % 114,000 70 % 130,800 40 % Traceable fixed expenses 133,200 28 % 81,600 52 % 52,320 16 % Office segment margin 109,800 22 % $ 32,400 18 % $ 78,480 24 % Common fixed expenses not traceable to offices 72,000…arrow_forward
- [The following information applies to the questions displayed below.] Raner, Harris and 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: Chicago Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Total Company Office Minneapolis 100 % $ 150,000 100 % $ 300,000 100% $ 450,000 225,000 50% 45,000 30% 180,000 60% 225,000 50% 105,000 70 % 120,000 40% 126,000 28% 78,000 52% 48,000 16% 99,000 22% $ 27,000 18 % 63,000 14% $ 36,000 8% $72,000 24% Net operating income 3. Assume that sales in Chicago increase by $50,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs. a. Prepare a new…arrow_forwardRequired information SB Exercise 7-16 through Exercise 7-17 (Static) [The following information applies to the questions displayed below.] Raner, Harris and 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: Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income Office Total Company Chicago Minneapolis $ 450,000 100% $ 150,000 100% $ 300,000 100% 225,000 50% 45,000 30% 225,000 50% 105,000 70% 126,000 28% 78,000 52% 99,000 22% $ 27,000 18% 63,000 14% $36,000 8% 180,000 120,000 48,000 60% 40% 16 % $ 72,000 24% Exercise 7-16 Part 3 (Static) Working with a Segmented Income Statement; Break-Even Analysis [LO7-4,…arrow_forwardObjective: Consider that you are an analyst at Regeneron Pharmaceuticals. You need to decide how to allocate administrative overhead costs to Regeneron's main commercial products (Eylea, Dupixent, Kevzara and Praluent). Determine how to appropriately allocate the costs in the table below to each of the commercial products using an allocation methodology of your choice. Department2019 Annual Operating ExpenseTime spent supporting Commercial productsCommercial$200MM100%IT$100MM25%Facilities$150MM0%Finance$25MM20%Human Resources$75MM10% Use the supporting document Net Product Sales of REGN Products to facilitate your analysis. Provide a written summary of how you allocated the overhead costs to each product in an outline of no more than one page. As a starting point, it's recommended that you revisit the material we covered in Chapter 12. Guidance on calculations:Start off with Net Product Sales of REGN Products. Your objective pertains to 2019 expenses, so you should be reviewing 2019…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
What is Cost Allocation? Definition & Process; Author: FloQast;https://www.youtube.com/watch?v=hLhvvHvZ3JM;License: Standard Youtube License