Exercise 6-17 Working with a Segmented Income Statement [LO6-4] Raner, Harris, &
ID: 2338934 • Letter: E
Question
Exercise 6-17 Working with a Segmented Income Statement [LO6-4]
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.
Market
Common fixed expenses
not traceable to markets
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 $5,200. Marketing studies indicate that such a campaign would increase sales in the Medical market by $45,500 or increase sales in the Dental market by $39,000.
Calculate the increased segment margin.
In which of the markets would you recommend that the company focus its advertising campaign?
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.
Explanation / Answer
1a Medical market: Increase in sales 45500 Contribution margin ratio 35% Increase in contribution margin 15925 Less: Advertising costs 5200 Increased segment margin 10725 Dental market: Increase in sales 39000 Contribution margin ratio 50% Increase in contribution margin 19500 Less: Advertising costs 5200 Increased segment margin 14300 1b Company focus its advertising campaign in Dental market