Question 8: (3 points)

Exercise 12-12 Working with a Segmented Income Statement [LO1]

Marple Associates is a consulting firm that specializes in information systems for construction and
landscaping companies. The firm has two offices-one in Houston and one in Dallas. The firm classifies the
direct costs of consulting jobs as variable costs.

Assume that Dallas' sales by major market are as follows:

Market
Construction
Dallas Clients Landscaping Clients
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 markets during the
next month. The campaign would cost $4,400. Marketing studies indicate that such a campaign would
increase sales in the construction market by $38,500 or increase sales in the landscaping market by $33,000.

Required:

Determine the net operating income for the company as a whole. (Omit the "$" sign in your response.)

Construction Landscaping
Clients Clients

Net operating income $ $

For construction clients, the increase in contribution margin is 38,500X0.35 = 13,475. The increase in
cost is 4,400. Increase in net operating income for the company is 13,475-4,400=$9,075

For Landscaping clients the increase in contribution margin is 33,000X0.5 = 16,500. The increase in cost is
4,400. Increase in net operating income for the company is 16,500-4,4,00=$12,100.