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Marple Associates is a consulting firm that specializes in information systems for construction and landscaping companies. The firm has two offices-one in Houston and one in Dallas. The firm classifies the direct costs of consulting jobs as variable costs. A segmented for the company's most recent year is given below:
Office
Total Company
Houston
Dallas
Sales.....
$750,000
100.0%
$150,000
100%
$600,000
Variable expenses...
405,000
54.0
45,000
30
360,000
60
Contribution margin....
345,000
46.0
105,000
70
240,000
40
Traceable fixed expenses....
168,000
22.4
78,000
52
90,000
15
Office segment margin....
177,000
23.6
$27,000
18%
25%
Common fixed expenses not traceable to offices....
120,000
16.0
Net operating income....
$57,000
7.6%
Required:
1. By how much would company's net operating income increase if Dallas increased its sales by $75,000 per year? Assume no change in cost behavior patterns.
2. Refer to the original data. Assume that sales in Houston increase by $50,000 next year and that sale in Dallas remain unchanged. Assume no change in fixed costs.
a. Prepare a new segmented income statement for the company using the above format. Show both amounts and percentages.
b. observer form the income statement you have prepared that the Cm ratio for Houston has remained unchanged at 70% (the same as in the above data) but that the segment margin raio has changed. How do you explain the change in the segment margin ratio?
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