1.Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses as shown by its most recent monthly contribution format income statement:
| Sales | $ 1,577,000 |
|---|---|
| Variable expenses | 750,660 |
| Contribution margin | 826,340 |
| Fixed expenses | 909,000 |
| Net operating income (loss) | $ (82,660) |
In an effort to resolve the problem, the company wants to prepare an income statement segmented by division. Accordingly, the Accounting Department provided the following information:
| Division | |||
|---|---|---|---|
| East | Central | West | |
| Sales | $ 407,000 | $ 640,000 | $ 530,000 |
| Variable expenses as a percentage of sales | 58% | 39% | 50% |
| Traceable fixed expenses | $ 294,000 | $ 336,000 | $ 206,000 |
Required:
1. Prepare a contribution format income statement segmented by divisions.
2-a. The Marketing Department believes increasing the West Division’s monthly advertising by $29,000 will increase that division’s sales by 15%. Assuming these estimates are accurate, how much would the company’s net operating income increase (decrease) if the proposal is implemented?
2-b. Would you recommend the increased advertising?
2.Required information
[The following information applies to the questions displayed below.]
Chuck Wagon Grills, Incorporated, makes a barbecue grill it sells for $210. Data for last year’s operations follow:
| Units in beginning inventory | 0 |
|---|---|
| Units produced | 21,600 |
| Units sold | 19,800 |
| Units in ending inventory | 1,800 |
| Variable costs per unit: | |
| Direct materials | $ 50 |
| Direct labor | 80 |
| Variable manufacturing overhead | 20 |
| Variable selling and administrative | 10 |
| Total variable cost per unit | $ 160 |
| Fixed costs: | |
| Fixed manufacturing overhead | $ 756,000 |
| Fixed selling and administrative | 297,000 |
| Total fixed costs | $ 1,053,000 |
Required:
How many barbecue grills must be sold to break even?
Assume the company uses variable costing. Compute the unit product cost for one barbecue grill.
Assume the company uses variable costing. Prepare a contribution format income statement for last year.
3. 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:
| Total Company | Office | |||||
|---|---|---|---|---|---|---|
| Chicago | Minneapolis | |||||
| Sales | $ 513,000 | 100.00% | $ 171,000 | 100.00% | $ 342,000 | 100.00% |
| Variable expenses | 256,500 | 50.00% | 51,300 | 30.00% | 205,200 | 60.00% |
| Contribution margin | 256,500 | 50.00% | 119,700 | 70.00% | 136,800 | 40.00% |
| Traceable fixed expenses | 143,640 | 28.00% | 88,920 | 52.00% | 54,720 | 16.00% |
| Office segment margin | 112,860 | 22.00% | $ 30,780 | 18.00% | $ 82,080 | 24.00% |
| Common fixed expenses not traceable to offices | 71,820 | 14.00% | ||||
| Net operating income | $ 41,040 | 8.00% | ||||
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?
4. 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:
| Total Company | Office | |||||
|---|---|---|---|---|---|---|
| Chicago | Minneapolis | |||||
| Sales | $ 513,000 | 100.00% | $ 171,000 | 100.00% | $ 342,000 | 100.00% |
| Variable expenses | 256,500 | 50.00% | 51,300 | 30.00% | 205,200 | 60.00% |
| Contribution margin | 256,500 | 50.00% | 119,700 | 70.00% | 136,800 | 40.00% |
| Traceable fixed expenses | 143,640 | 28.00% | 88,920 | 52.00% | 54,720 | 16.00% |
| Office segment margin | 112,860 | 22.00% | $ 30,780 | 18.00% | $ 82,080 | 24.00% |
| Common fixed expenses not traceable to offices | 71,820 | 14.00% | ||||
| Net operating income | $ 41,040 | 8.00% | ||||
2. How much would the company’s net operating income increase if Minneapolis increased its sales by $85,500 per year? Assume no change in cost behavior patterns.
5. 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:
| Total Company | Office | |||||
|---|---|---|---|---|---|---|
| Chicago | Minneapolis | |||||
| Sales | $ 513,000 | 100.00% | $ 171,000 | 100.00% | $ 342,000 | 100.00% |
| Variable expenses | 256,500 | 50.00% | 51,300 | 30.00% | 205,200 | 60.00% |
| Contribution margin | 256,500 | 50.00% | 119,700 | 70.00% | 136,800 | 40.00% |
| Traceable fixed expenses | 143,640 | 28.00% | 88,920 | 52.00% | 54,720 | 16.00% |
| Office segment margin | 112,860 | 22.00% | $ 30,780 | 18.00% | $ 82,080 | 24.00% |
| Common fixed expenses not traceable to offices | 71,820 | 14.00% | ||||
| Net operating income | $ 41,040 | 8.00% | ||||
3. Assume sales in Chicago increase by $57,000 next year and sales in Minneapolis and all fixed costs remain unchanged.
a. Prepare a new segmented income statement for the company.
Note: Round your intermediate calculations and percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3 and other answers to the nearest whole dollar.)
6. 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:
| Total Company | Office | |||||
|---|---|---|---|---|---|---|
| Chicago | Minneapolis | |||||
| Sales | $ 513,000 | 100.00% | $ 171,000 | 100.00% | $ 342,000 | 100.00% |
| Variable expenses | 256,500 | 50.00% | 51,300 | 30.00% | 205,200 | 60.00% |
| Contribution margin | 256,500 | 50.00% | 119,700 | 70.00% | 136,800 | 40.00% |
| Traceable fixed expenses | 143,640 | 28.00% | 88,920 | 52.00% | 54,720 | 16.00% |
| Office segment margin | 112,860 | 22.00% | $ 30,780 | 18.00% | $ 82,080 | 24.00% |
| Common fixed expenses not traceable to offices | 71,820 | 14.00% | ||||
| Net operating income | $ 41,040 | 8.00% | ||||
Assume Minneapolis’s sales by major market are:
| Minneapolis | Market | |||||
|---|---|---|---|---|---|---|
| Medical | Dental | |||||
| Sales | $ 342,000 | 100.00% | $ 228,000 | 100.00% | $ 114,000 | 100.00% |
| Variable expenses | 205,200 | 60.00% | 145,920 | 64.00% | 59,280 | 52.00% |
| Contribution margin | 136,800 | 40.00% | 82,080 | 36.00% | 54,720 | 48.00% |
| Traceable fixed expenses | 37,620 | 11.00% | 13,680 | 6.00% | 23,940 | 21.00% |
| Market segment margin | 99,180 | 29.00% | $ 68,400 | 30.00% | $ 30,780 | 27.00% |
| Common fixed expenses not traceable to markets | 17,100 | 5.00% | ||||
| Office segment margin | $ 82,080 | 24.00% | ||||
The company is planning a $5,700 advertising campaign next month in either the Medical or Dental market. Marketing studies indicate this campaign would increase Medical market sales by $45,600 or Dental market sales by $39,900.
Required:
Should the company advertise in the Medical or Dental market?
How much would the company’s profits increase (decrease) if it advertised in the Medical market?
How much would the company’s profits increase (decrease) if it advertised in the Dental market?
