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: Assume that Minneapolis’ sales by major market are: Market Minneapolis Medical Dental Sales $ 300,000 100 % $ 200,000 100 % $ 100,000 100 % Variable expenses 180,000 60 % 128,000 64 % 52,000 52 % Contribution margin 120,000 40 % 72,000 36 % 48,000 48 % Traceable fixed expenses 33,000 11 % 12,000 6 % 21,000 21 % Market segment margin 87,000 29 % $ 60,000 30 % $ 27,000 27 % Common fixed expenses not traceable to markets 15,000 5 % Office segment margin $ 72,000 24 % 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 $5,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,000 or increase sales in the Dental market by $35,000. Required: 1. How much would the companys profits increase (decrease) if it implemented the advertising campaign in the Medical Market? 2. How much would the companys 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?
Raner, Harris & Chan is a consulting firm that specializes in informat
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: Assume that Minneapolis’ sales by major market are: Market Minneapolis Medical Dental Sales $ 300,000 100 % $ 200,000 100 % $ 100,000 100 % Variable expenses 180,000 60 % 128,000 64 % 52,000 52 % Contribution margin 120,000 40 % 72,000 36 % 48,000 48 % Traceable fixed expenses 33,000 11 % 12,000 6 % 21,000 21 % Market segment margin 87,000 29 % $ 60,000 30 % $ 27,000 27 % Common fixed expenses not traceable to markets 15,000 5 % Office segment margin $ 72,000 24 % 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 $5,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,000 or increase sales in the Dental market by $35,000. Required: 1. How much would the companys profits increase (decrease) if it implemented the advertising campaign in the Medical Market? 2. How much would the companys 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?
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