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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 below:
Office
Total Company Chicago Minneapolis
Sales $ 450,000 100 % $ 150,000 100 % $ 300,000 100 %

Variable expenses 225,000 50 % 45,000 30 % 180,000 60 %

Contribution margin 225,000 50 % 105,000 70 % 120,000 40 %

Traceable fixed expenses 126,000 28 % 78,000 52 % 48,000 16 %

Office segment margin 99,000 22 % $ 27,000 18 % $ 72,000 24 %

Common fixed expenses not

traceable to offices 63,000 14 %


Net operating income $ 36,000 8 %

1-a. Compute the companywide break-even point in dollar sales.
1-b. Compute the break-even point for the Chicago office and for the Minneapolis office.
1-c. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points?

Respuesta :

Explanation:

 1. The computation of the company wide break-even point in dollar sales is shown below:

Break even point = (Traceable fixed expenses + Common fixed expenses   ) ÷ (Profit volume Ratio)  

where,  

Contribution margin = Sales - Variable expenses

= $450,000 - $225,000

= $225,000

And, Profit volume ratio = (Contribution margin) ÷ (Sales) × 100

= ($225,000) ÷ ($450,000) × 100

= 50%

So, the company wide break even point in dollar sales is

= ($126,000 + $63,000) ÷ (50%)

= $378,000

b. For Chicago

Break even point = (Traceable fixed expenses) ÷ (Profit volume Ratio)  

where,  

Contribution margin = Sales - Variable expenses

= $150,000 - $45,000

= $105,000

And, Profit volume ratio = (Contribution margin) ÷ (Sales) × 100

= ($105,000) ÷ ($150,000) × 100

= 70%

So, the company wide break even point in dollar sales is

= ($78,000) ÷ (70%)

= $111,429

For Minneapolis

Break even point = (Traceable fixed expenses) ÷ (Profit volume Ratio)  

where,  

Contribution margin = Sales - Variable expenses

= $300,000 - $180,000

= $120,000

And, Profit volume ratio = (Contribution margin) ÷ (Sales) × 100

= ($120,000) ÷ ($300,000) × 100

= 40%

So, the company wide break even point in dollar sales is

= ($48,000) ÷ (40%)

= $120,000

c. The company wide break even point in sales dollars is $378,000 and the total is $111,429 + $120,000 = $231,429

So, the company wide break even point is greater than the  sum of the Chicago and Minneapolis break-even points due to the common fixed expenses

marvineetesh3

The company-wide break-even point in dollar sales is $378,000, and for the Chicago office and for the Minneapolis office it will be $111,429 and $120,000.

What is break even-point?

The break even-point is defined as the market condition where there is no profit and no loss to the seller. The producer of any product is just cover up the cost of their product.

  • Computation of break even-point in the given cases:

Calculation of the company's dollar sales break-even point:

Break even point = Fixed Cost ÷ (Profit volume Ratio)  

Now, according to the given information,

Fixed Cost = Traceable fixed expenses + Common fixed expenses.

Fixed Cost = $126,000 + $63,000

Fixed Cost = $189,000.

Then, there is a need to find out the Profit volume ratio, this can be computed as:

Profit volume ratio = (Contribution margin) ÷ (Sales) × 100

Now, the contribution margin can be computed as:

Contribution margin = Sales – Variable expenses

Contribution margin = $450,000 – $225,000

Contribution margin = $225,000.

Then, Profit volume ratio = ($225,000) ÷ ($450,000) × 100

Profit volume ratio = 50%

Therefore, the company-wide break even point in dollar sales are:

Break even point sales = $189,000÷ (50%)

Break even point sales = $378,000.

  • Computation of break even-point for Chicago:

This can also be computed as the formula of case 1:

Break even point = (Traceable fixed expenses) ÷ (Profit volume Ratio)  

Contribution margin = Sales – Variable expenses

Contribution margin = $150,000 – $45,000

Contribution margin = $105,000

And, Profit volume ratio = (Contribution margin) ÷ (Sales) × 100

Profit volume ratio = ($105,000) ÷ ($150,000) × 100

Profit volume ratio = 70%

Then, the company-wide break even point in dollar sales are:

Break even point sales = ($78,000) ÷ (70%)

Break even point sales= $111,429

For Minneapolis:

Contribution margin = $300,000 – $180,000

Contribution margin = $120,000

And, Profit volume ratio = ($120,000) ÷ ($300,000) × 100

Profit volume ratio = 40%

Therefore, the company-wide break even point in dollar sales is

Break even point sales= ($48,000) ÷ (40%)

Break even point sales= $120,000

  • In sales dollars, the company's break even point is $378,000, for a total of $111,429 + $120,000 = $231,429

As a result of the common fixed expenses, the company's break-even point is greater than the sum of the break-even points in Chicago and Minneapolis.

Learn more about the  break-even point, refer to:

https://brainly.com/question/15356272

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