Determine the increase in net operating income

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Reference no: EM13177166

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 as follows:

			Market
	Minneapolis		Medical		Dental
Sales	$450,000	100%	$300,000	100%	$150,000	100%
Variable expenses	270,000	60%	195,000	65%	75,000	50%
Contribution margin	180,000	40%	105,000	35%	75,000	50%
Traceable fixed expenses	54,000	12%	15,000	5%	39,000	26%
Market segment margin	126,000	28%	$90,000	30%	$36,000	24%
Common fixed expenses not traceable to markets	13,500	3%
Office segment margin	$112,500	25%

The company would like to initiate an intensive advertising campaign in one of the two market segmentsduring the next month. The campaign would cost $6,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $52,500 or increase sales in the Dental market by $45,000.

Required:

Determine the increase in net operating income in each market if the advertising campaign were to be initiated in that market.

Reference no: EM13177166

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