Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm 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:   Assume that Minneapolis’ sales by major market are:             Market   Minneapolis Medical Dental Sales $ 870,000 100 % $ 580,000 100 % $ 290,000 100 % Variable expenses   522,000 60 %   377,000 65 %   145,000 50 % Contribution margin   348,000 40 %   203,000 35 %   145,000 50 % Traceable fixed expenses   104,400 12 %   29,000 5 %   75,400 26 % Market segment margin   243,600 28 % $ 174,000 30 % $ 69,600 24 % Common fixed expenses not traceable to markets   26,100 3 %                 Office segment margin $ 217,500 25 %                     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 $11,600. Marketing studies indicate that such a campaign would increase sales in the Medical market by $101,500 or increase sales in the Dental market by $87,000.   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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Topic Video
Question

Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm 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:

 

Assume that Minneapolis’ sales by major market are:

 

         

Market

  Minneapolis Medical Dental
Sales $ 870,000 100 % $ 580,000 100 % $ 290,000 100 %
Variable expenses   522,000 60 %   377,000 65 %   145,000 50 %
Contribution margin   348,000 40 %   203,000 35 %   145,000 50 %
Traceable fixed expenses   104,400 12 %   29,000 5 %   75,400 26 %
Market segment margin   243,600 28 % $ 174,000 30 % $ 69,600 24 %

Common fixed expenses
not traceable to markets

  26,100 3 %                
Office segment margin $ 217,500 25 %                
 

 

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 $11,600. Marketing studies indicate that such a campaign would increase sales in the Medical market by $101,500 or increase sales in the Dental market by $87,000.

 

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?

 

 

 

 

Expert Solution
Step 1

 

Variable cost vary with the level of output where as fixed cost remain fixed.

Total cost will include both variable and fixed cost.

We need to introduce the advertising campaign in that market where we get higher contribution as fixed cost is not relevant.

 

trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 1 images

Blurred answer
Knowledge Booster
Costing Systems
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education