SB Exercise $6-16$ through Exercise $6-17($Static$)$

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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:

Total Company Office

Chicago Minneapolis

Sales $ $450,000100\%$ $ $150,000100\%$ $ $300,000100\%$

Variable expenses $225,00050\%45,00030\%180,00060\%$

Contribution margin $225,00050\%105,00070\%120,00040\%$

Traceable fixed expenses $126,00028\%78,00052\%48,00016\%$

Office segment margin $99,00022\%$ $ $27,00018\%$ $ $72,00024\%$

Common fixed expenses not traceable to offices $63,00014\%$

Net operating income $ $36,0008\%$

Exercise $6-17($Static$)$ Working with a Segmented Income Statement $[$LO$6-4]$

Assume Minneapolis$$s sales by major market are:

Minneapolis Market

Medical Dental

Sales $ $300,000100\%$ $ $200,000100\%$ $ $100,000100\%$

Variable expenses $180,00060\%128,00064\%52,00052\%$

Contribution margin $120,00040\%72,00036\%48,00048\%$

Traceable fixed expenses $33,00011\%12,0006\%21,00021\%$

Market segment margin $87,00029\%$ $ $60,00030\%$ $ $27,00027\%$

Common fixed expenses not traceable to markets $15,0005\%$

Office segment margin $ $72,00024\%$

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:

How much would the company's profits increase $($decrease$)$ if it advertised in the Medical market?

How much would the company's profits increase $($decrease$)$ if it advertised in the Dental market?

Should the company advertise in the Medical or Dental market?