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Q1) Marple Associates is consulting firm which specializes in information systems for construction and landscaping companies. Firm has two offices-one in Houston and one in Dallas. Firm categorizes direct costs of consulting jobs as variable costs. Segmented for company's most recent year is listed below:

  Total Company Houston Dallas
Sales..... $750,000 100.0% $150,000 100% $600,000 100%
Variable expenses... 405,000 54.0 45,000 30 360,000 60
Contribution margin.... 345,000 46.0 105,000 70 240,000 40
Traceable fixed expenses.... 168,000 22.4 78,000 52 90,000 15
Office segment margin.... 177,000 23.6 $27,000 18% $150,000 25%
Common fixed expenses not traceable to offices.... 120,000 16.0        
Net operating income.... $57,000 7.6%        


1. By how much would company's net operating income increase if Dallas increased its sales by $75,000 per year? Suppose no change in cost behavior patterns.

2. Refer to original data. Suppose that sales in Houston increase by $50,000 next year and that sale in Dallas remain unchanged. Suppose no change in fixed costs.

a. Create a new segmented income statement for company using the above format. Illustrate both amounts and percentages.

b. Observer form income statement you have created that Cm ratio for Houston has remained unchanged at 70% (same as in the above data) but that segment margin raio has changed. How do you describe change in  segment margin ratio?

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