Preparation of segmented income statement

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Reference no: EM1319673

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

100%

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%

$150,000

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?

Reference no: EM1319673

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