## Thursday, 2 August 2012

### 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

 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 contribution format income statement 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 the company’s net operating income increase if Dallas increased its sales by \$75,000 per year? Assume no change in cost behavior patterns. (Omit the "\$" sign in your response.)

 Net operating income \$ 30,000 2. Refer to the original data. Assume that sales in Houston increase by \$50,000 next year and that sales in Dallas remain unchanged. Assume no change in fixed costs.

 a. Prepare a new segmented income statement for the company. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your percentage answers to 1 decimal place. Omit the "\$" and "%" signs in your response.)

 Segments Total Company Houston Dallas Amount % Amount % Amount % Sales \$ 800,000 100 \$ 200,000 100 \$ 600,000 100 Variable expenses 420,000 52.5 60,000 30 360,000 60 Contribution margin 380,000 47.5 140,000 70 240,000 40 Traceable fixed expenses 168,000 21.0 78,000 39 90,000 15 Office segment margin 212,000 26.5 62,000 31 150,000 25 Common fixed expenses not traceable to segments 120,000 15.0 Net operating income (loss) \$ 92,000 11.5