Answer Happy

Raner, Harris and 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. A contribution format segmented income statement for the company's most recent year is given; Office Total Company Chicago Sales Minneapolis $360,000 100% $540,000 100% $ 180,000 100% Variable expenses Contribution margin 270,000 50% 54,000 30% 216,000 60% Traceable fixed expenses 270,000 50% 151,200 28% 118,800 22% 75,600 14% 126,000 70% 93,600 52% 18% 144,000 40% 57,600 16% $ 86,400 24% office segment margin $ 32,400 Common fixed expenses not traceable to offices Net operating income $ 43,200 8%
Assume that Minneapolis' sales by major market are: Medical Sales $360,000 100% 100% 216,000 60% Variable expenses Contribution margin 62,400 52% $ 240,000 100% 153,600 64% 86,400 36% 14,400 6% 144,000 40% Traceable fixed expenses 39,600 11% 57,600 48% 25,200 21% $ 32,400 27% office segment margin 29% $ 72,000 30% 104,400 18,000 $ 86,400 24 % 5% Common fixed expenses not traceable to offices Net operating income The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $6,000 Marketing studies indicate that such a campaign would increase sales in the Medical market by $48,000 or increase sales in the Dental market by $42,000. Minneapolis Market Dental $ 120,000
Required: 1. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? 2. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Dental Market? 3. In which of the markets would you recommend that the company focus its advertising campaign?