Determine the increase in net operating income

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Problem - 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

$360,000

100%

$240,000

100%

$120,000

100%

Variable expenses

216,000

60%

156,000

65%

60,000

50%

Contribution margin

144,000

40%

84,000

35%

60,000

50%

Traceable fixed expenses

43,200

12%

12,000

5%

31,200

26%

Market segment margin

100,800

28%

$72,000

30%

$28,800

24%

Common fixed expenses
     not traceable to markets

10,800

3%

       

Office segment margin

$90,000

25%

       

The company would like to initiate an intensive advertising campaign in one of the two markets during the next month. The campaign would cost $4,800. Marketing studies indicate that such a campaign would increase sales in the Medical market by $42,000 or increase sales in the Dental market by $36,000.

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

Reference no: EM131877332

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