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:
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?

  • CreatedJuly 08, 2015
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