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 Minneapolisâ sales by major market are:
Market
Minneapolis Medical Dental
Sales $ 660,000 100 % $ 440,000 100 % $ 220,000 100%
Variable expenses 396,000 60% 286,000 65% 110,000 50%
Contribution margin 264,000 40% 154,000 35% 110,000 50%
Traceable fixed expenses 79,200 12% 22,000 5% 57,200 26%
Market segment margin 184,800 28% $132,000 30% $ 52,800 24%
Common fixed expenses not traceable to markets 19,800 3%
Office segment margin $ 165,000 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 $8,800. Marketing studies indicate that such a campaign would increase sales in the Medical market by $77,000 or increase sales in the Dental market by $66,000.
Required:
1. Calculate the increased segment margin.