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.

Assume that Minneapolis’ sales by major market are:
Market
Minneapolis Medical Dental
Sales $ 330,000 100 % $ 220,000 100 % $ 110,000 100 %
Variable expenses 198,000 60 % 143,000 65 % 55,000 50 %

Contribution margin 132,000 40 % 77,000 35 % 55,000 50 %
Traceable fixed expenses 39,600 12 % 11,000 5 % 28,600 26 %

Market segment margin 92,400 28 % $ 66,000 30 % $ 26,400 24 %

Common fixed expenses
not traceable to markets 9,900 3 %

Office segment margin $ 82,500 25 %


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 $4,400. Marketing studies indicate that such a campaign would increase sales in the Medical market by $38,500 or increase sales in the Dental market by $33,000.
Required:
Calculate the increased segment margin.for Medical:
Calculate the increased segment margin for Dental:

Answer 1

Increase Segment margin for Medial = $9,075

Increase Segment margin for Dental = $12,100

Step-by-step explanation:

The calculation of increased segment margin.for Medical and Dental is shown below:-

Medical Dental

Incremental Sales $38,500 $33,000

Less: Variable Cost ($25,025) ($16,500)

(Medical 65% and ($38,500 × 65%) ($33,000 × 50%)

Dental 50%)

Incremental

Contribution Margin $13,475 $16,500

Less: Traceable

Advertising Cost ($4,400) ($4,400)

Increase Segment

Margin $9,075 $12,100