Middleton Associates is a consulting firm that specializes in information system
ID: 2539168 • Letter: M
Question
Middleton Associates is a consulting firm that specializes in information systems for construction and landscaping companies. The firm has two offices-one in Toronto and one in Vancouver. The firm classifies the direct costs of consulting jobs as variable costs. A segmented contribution format income statement for the company's most recent year is given below Office Total Company 378,000 45.00 462,000 55.00 Toronto 28,000 20 112,000 80 Vancouver 350,000 50 350,000 50 Sales $840,000 100.00% $140,000 100% $700,000 100% Variable expenses Contribution margin 75,600 54 Traceable fixed expenses Office segment margin Common fixed expenses not 180,600 21.50 105,000 15 281,400 33.50 $36.400 26% $245,000 35% traceable to offices 210,000 25.00 Operating income $ 71,400 8.50% Required. 1. By how much would the company's operating income increase if Vancouver increased its sales by $79,000 per year? Assume no change in cost behaviour patterns Net operating incomeExplanation / Answer
1 Net operating income increase = 79000*50%= $39500 2 Segements Total Company Toronto Vancouver Amount % Amount % Amount % Sales $1,000,000 100.0% 300000 100.0% $700,000 100.0% Variable expenses $410,000 41.0% 60,000 20.0% 350,000 50.0% Contribution margin $590,000 59.0% 240,000 80.0% 350,000 50.0% Traceable fixed expenses $180,600 18.1% 75,600 25.2% 105,000 15.0% Office segment margin $409,400 40.9% $164,400 54.8% $245,000 35.0% Common fixed expenses not traceable 210,000 21.0% Net operating income $199,400 19.9%