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Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two officesâone in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. |
| Assume that Minneapolis’ sales by major market are as follows: |
| Market | ||||||
| Minneapolis | Medical | Dental | ||||
| Sales | $510,000 | 100% | $340,000 | 100% | $170,000 | 100% |
| Variable expenses |
306,000 |
60% |
221,000 |
65% |
85,000 |
50% |
| Contribution margin | 204,000 | 40% | 119,000 | 35% | 85,000 | 50% |
| Traceable fixed expenses |
61,200 |
12% |
17,000 |
5% |
44,200 |
26% |
| Market segment margin | 142,800 | 28% |
$102,000 |
30% |
$40,800 |
24% |
| Common fixed expenses not traceable to markets |
15,300 | 3% | ||||
| Office segment margin |
$127,500 |
25% |
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The company would like to initiate an intensive advertising campaign in one of the two market segmentsduring the next month. The campaign would cost $6,800. Marketing studies indicate that such a campaign would increase sales in the Medical market by $59,500 or increase sales in the Dental market by $51,000. |
| Required: |
|
Determine the increase in net operating income in each market if the advertising campaign were to be initiated in that market.(Omit the “$” sign in your response.) |
| Medical | Dental | |
| Increase in net operating income | $ | $ |
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