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 $ 499,500 Variable expenses Contribution margin 100% 249,750 50% 249,750 50% 139,860 28% $ 166,500 49,950 116,550 86,580 Minneapolis 100% $ 333,000 100% 30% 199,800 60% 70% 133,200 52% 40% 16% Traceable fixed expenses 53,280 $ 29,970 18% Office segment margin $ 79,920 24% Common fixed expenses not traceable to offices 109,890 22% 69,930 14% 8% Net operating income. $ 39,960
Assume that Minneapolis' sales by major market are: Market Minneapolis Medical Dental Sales Variable expenses Contribution margin $ 333,000 100% 199,800 60% 133,200 40% 36,630 11% 96,570 29% 16,650 5 % $ 79,920 24 % $ 222,000 100% $ 111,000 100% 142,080 64% 52% 79,920 36% 48% 13,320 6% $ 66,600 30% 57,720 53,280 23,310 21% 27% Traceable fixed expenses Office segment margin $ 29,970 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 $5,550. Marketing studies indicate that such a campaign would increase sales in the Medical market by $44,400 or increase sales in the Dental market by $38,850. 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?