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:

Required:
1. By how much would the company€™s operating income increase if Vancouver increased its sales by $75,000 per year? Assume no change in cost behaviour patterns.
2. Refer to the original data. Assume that sales in Toronto increase by $50,000 next year and that sales in Vancouver 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 CM ratio for Toronto 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?

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Office Total Company Toronto Vancouver Sales... Variable expenses.. Contribution margin.. Traceable fixed expenses... Office segment margin.... Common fixed expenses not traceable to offices... Operating income.... 1000% 100% $150,000 30 100% $750,000 $600,000 540 60 105,000 52 46.0 345,000 168,000 224 177,000 70 40 90,000 240,000 15 $ 27000 S 150,000 25% 236 18% 160 120,000 $ 57,000 7.6%