Market Minneapols Medical Dental 100% 100% $200,000 64% 128.000 36% Sales 100% Varlable expenses. Contribution margin Traceable fbxed expenses Market segment margin. Common fixed expenses not traceable to markets. Office segment margin... $300,000 $100,000 180.000 60% 40% 72,000 48,000 52% 48% 11% 33,000 29% 87,000 12,000 6% 21,000 $ 27,000 21% $ 60,000 30% 27% 15.000 24% $ 72,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Working with a Segmented Income Statement
Assume that Minneapolis’ sales by major market are:
The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $5,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,000 or increase sales in the Dental market by $35,000.
Required:
1. How much would the company’s profits increase (decrease) if it implemented the advertising campaign in the Medical Market?
2. How much would the company’s profits increase (decrease) if it implemented the advertising campaign in the Dental Market?
3. In which of the markets would you recommend that the company focus its advertising campaign?
4. In Exercise 6-16, Minneapolis shows $48,000 in traceable fixed expenses. What happened to the $48,000 in this exercise?
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