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?

Transcribed Image Text:

Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income Total Company 345,000 46.0 $750,000 100.0% $150,000 100% $600,000 100% 168,000 22.4 405,000 54.0 45,000 30 360,000 60 177,000 23.6 Houston 120.000 16.0 $57.000 7.6% Office 105,000 70 Dallas 78,000 52 240,000 40 90,000 15 S 27,000 18% $150,000 25% Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income Total Company 345,000 46.0 $750,000 100.0% $150,000 100% $600,000 100% 168,000 22.4 405,000 54.0 45,000 30 360,000 60 177,000 23.6 Houston 120.000 16.0 $57.000 7.6% Office 105,000 70 Dallas 78,000 52 240,000 40 90,000 15 S 27,000 18% $150,000 25%

Answer rating: 100% (QA)

1 Multiply Dallas contribution margin ratio by the incre... View the full answer