Middleton Associates is a consulting firm that specializes in information systems for construction and landscaping companies. The firm has two offices-one in Toronto and one in Vancouver. 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: Office Sales Variable expenses Contribution margin: Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Operating income Toronto Vancouver Total Company $750,000 100.0% $130,000 100% $620,000 100% 373,500 49.80 376,500 50.20 32,500 25 341,000 55 97,500 75 279,000 45 46,800 36 121,200 16.16 74,400 12 255,300 34.04 $ 50,700 39% $204,600 33% increase in operating income 120,000 16.00 $135, 300 18.04% Required: 1. By how much would the company's operating income increase if Vancouver increased its sales by $71,000 per year? Assume no change in cost behaviour patterns.

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Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit.  Overhead expenses depend upon the nature of the business operations.