Final answer:
The company's operating income would decrease by $71,250 if Vancouver increased its sales by $75,000 per year.
Step-by-step explanation:
To calculate the increase in the company's operating income if Vancouver increased its sales by $75,000 per year, we need to determine the impact of this increase on the office segment margin and then on the overall operating income.
1. Calculate the percentage increase in Vancouver's sales:
- Increase in sales = $75,000
- Percentage increase = (Increase in sales / Vancouver's current sales) * 100
- Percentage increase = ($75,000 / $600,000) * 100
- Percentage increase = 12.5%
2. Calculate the increase in Vancouver's office segment margin:
- Increase in office segment margin = Percentage increase * Vancouver's current office segment margin
- Increase in office segment margin = 12.5% * $150,000
- Increase in office segment margin = $18,750
3. Calculate the increase in the company's operating income:
- Increase in operating income = Increase in office segment margin - Increase in traceable fixed expenses
- Increase in operating income = $18,750 - $90,000 (since traceable fixed expenses are not affected by the increase in sales)
- Increase in operating income = -$71,250
Therefore, the company's operating income would decrease by $71,250 if Vancouver increased its sales by $75,000 per year. This decrease occurs because the increase in sales does not cover the additional traceable fixed expenses, resulting in a negative impact on the overall operating income.
Your question is incomplete, but most probably the full question was:
Middleton Associates is a consulting firm that specializes in information systems for construction and landscaping companies.
The firm has two offices - one in Toronto and one in Vancouver.
The firm classifies the direct costs of consulting jobs as variable costs.
A segmented contribution format income statement for the company's most recent year is given below:
Office
Total Company Toronto Vancouver
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
Operating income $57,000 7.6%
Required:
By how much would the company's operating income increase if Vancouver increased its sales by $75,000 per year?
Assume no change in cost behaviour patterns.