Question

Raner, Harris & 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 Minneapolis
Sales $450,000 100% $150,000 100% $300,000 100%
Variable expenses 225,000 50% 45,000 30% 180,000 60%

Contribution margin 225,000 50% 105,000 70% 120,000 40%
Traceable fixed expenses 126,000 28% 78,000 52% 48,000 16%

Office segment margin 99,000 22% $27,000 18% $72,000 24%
Common fixed expenses not traceable to offices 63,000 14 %
Net operating income $36,000 8%

Required:
(1) Compute the companywide break-even point in dollar sales.

Answer 1

Answer:

The Break Even Point is the Sales Value that will cover the cost of production. Meaning the Sales Value that will bring profitability to Zero

Break Even sales for Company wide =  $378,000

Break Even Value for Chicago is $111,429

And Break Even Value for Minneapolis is $120,000

The Addition of both Outlets/Offices Break Even Sales is less than the Company-wide because the Offices don't share in the Common Fixed Expense as these are specific to Group reporting.

Explanation: