Raner, Harris and Chan is a consulting firm specializing in information systems for medical and dental...

  

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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: Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income. Office Total Company Chicago Minneapolis $ 450,000 100% 225,000 50% $ 150,000 45,000 100% $ 300,000 100% 30% 180,000 60% 225,000 50% 105,000 70% 120,000 40% 126,000 28% 78,000 52% 48,000 16% 99,000 22% $ 27,000 18% $ 72,000 24% 63,000 14% $ 36,000 8% Assume Minneapolis's sales by major market are: Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Common fixed expenses not traceable to markets Office segment margin Market Minneapolis Medical Dental $ 300,000 100% 180,000 60% 120,000 40% 33,000 11% 87,000 29% 15,000 5% $ 72,000 24% $ 200,000 100% 128,000 64% 72,000 36% 12,000 $ 60,000 $ 100,000 100% 52,000 52% 48,000 48% 6% 21,000 21% 30% $ 27,000 27% The company is planning a $5,000 advertising campaign next month in either the Medical or Dental market. Marketing studies indicate this campaign would increase Medical market sales by $40,000 or Dental market sales by $35,000. Required: 1. How much would the company's profits increase (decrease) if it advertised in the Medical market? 2. How much would the company's profits increase (decrease) if it advertised in the Dental market? 3. Should the company advertise in the Medical or Dental market? 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: Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income. Office Total Company Chicago Minneapolis $ 450,000 100% 225,000 50% $ 150,000 45,000 100% $ 300,000 100% 30% 180,000 60% 225,000 50% 105,000 70% 120,000 40% 126,000 28% 78,000 52% 48,000 16% 99,000 22% $ 27,000 18% $ 72,000 24% 63,000 14% $ 36,000 8% Assume Minneapolis's sales by major market are: Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Common fixed expenses not traceable to markets Office segment margin Market Minneapolis Medical Dental $ 300,000 100% 180,000 60% 120,000 40% 33,000 11% 87,000 29% 15,000 5% $ 72,000 24% $ 200,000 100% 128,000 64% 72,000 36% 12,000 $ 60,000 $ 100,000 100% 52,000 52% 48,000 48% 6% 21,000 21% 30% $ 27,000 27% The company is planning a $5,000 advertising campaign next month in either the Medical or Dental market. Marketing studies indicate this campaign would increase Medical market sales by $40,000 or Dental market sales by $35,000. Required: 1. How much would the company's profits increase (decrease) if it advertised in the Medical market? 2. How much would the company's profits increase (decrease) if it advertised in the Dental market? 3. Should the company advertise in the Medical or Dental market?