Reference no: EM131579770

Question - Working with a Segmented Income Statement

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.

Assume that Minneapolis' sales by major market are:

	Minneapolis		Market
			Medical		Dental
Sales	$660,000	100%	$440,000	100%	$220,000	100%
Variable expenses	396,000	60%	286,000	65%	110,000	50%
Contribution margin	264,000	40%	154,000	35%	110,000	50%
Traceable fixed expenses	79,200	12%	22,000	5%	57,200	26%
Market segment margin	184,800	28%	$132,000	30%	$52,800	24%
Common fixed expenses not traceable to markets	19,800	3%
Office segment margin	$165,000	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 $8,800. Marketing studies indicate that such a campaign would increase sales in the Medical market by $77,000 or increase sales in the Dental market by $66,000.

Required:

a. Calculate the increased segment margin.

b. In which of the markets would you recommend that the company focus its advertising campaign?

• Medical
• Dental