Exercise 6-16 Working with a Segmented Income Statement; Break-Even Analysis [LO
ID: 2426427 • Letter: E
Question
Exercise 6-16 Working with a Segmented Income Statement; Break-Even Analysis [LO6-4, L06-5] [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 below: Office Minneapolis Total Company 506,250 54.0% 431,250 46.0% Chicago Sales Variable expenses $ 937,500 100.0% $187,500 100% $750,000 100% 56,250 30% 450,000 60% Contribution margin Traceable fixed expenses 131,250 70% 300,000 40% 15% 210,000 22.4% 97,500 52% 112,500 Office segment margin 221,250 23.6% $ 33,750 18% $187,500 25% Common fixed expenses not traceable to offices 150,000 16.0% Net operating income 71,250 7.6% References Section Break Exercise 6-16 Working with a Segmented Income Statement; Break-Even Analysis [LO6-4, LO6-5]Explanation / Answer
1 a) Break even point in dollar sales = Fixed expenses / contribution
Break even point = $210000/$431250
BEP = 48.70%
1b) Break even point = Fixed expenses / contribution
Chicago = $97500 / $131250 = 74.29%
Minneapolis = $112500 / $300000 = 37.50%
1c) company wide break even point is less than the sum of break even points of chicago and minnepolis.
2) minnepolis net income statement
3) New segmented Income statement
segements
Total company Chicago Minnepolis
particulars amount Sales $843750 less variable expenses $506250 contribution $337500 less fixed expenses $126563 net income $210937