Marple Associates is a consulting firm that specializes in

Marple Associates is a consulting firm that specializes in information systems for construction and landscaping companies. The firm has two offices—one in Houston and one in Dallas. 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 net operating income increase if Dallas increased its sales by $75.000 per year? Assume no change in cost behavior patterns.

2. Refer to the original data. Assume that sales in Houston increase by 550.000 next year and that sales in Dallas 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 Houston 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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