Problem - 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 as follows:
| |
|
|
Market
|
| |
Minneapolis
|
Medical
|
Dental
|
|
Sales
|
$360,000
|
100%
|
$240,000
|
100%
|
$120,000
|
100%
|
|
Variable expenses
|
216,000
|
60%
|
156,000
|
65%
|
60,000
|
50%
|
|
Contribution margin
|
144,000
|
40%
|
84,000
|
35%
|
60,000
|
50%
|
|
Traceable fixed expenses
|
43,200
|
12%
|
12,000
|
5%
|
31,200
|
26%
|
|
Market segment margin
|
100,800
|
28%
|
$72,000
|
30%
|
$28,800
|
24%
|
|
Common fixed expenses
not traceable to markets
|
10,800
|
3%
|
|
|
|
|
|
Office segment margin
|
$90,000
|
25%
|
|
|
|
|
The company would like to initiate an intensive advertising campaign in one of the two markets during the next month. The campaign would cost $4,800. Marketing studies indicate that such a campaign would increase sales in the Medical market by $42,000 or increase sales in the Dental market by $36,000.
Required: Determine the increase in net operating income in each market if the advertising campaign were to be initiated in that market.