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Here is a segmented income statement for Marple Associates, 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 its consulting jobs as variable costs that are directly traceable to the segments, and it allocates the common fixed costs to the segments based on their relative sales amounts.
Based on the analysis shown below, Marple Associates is considering closing the Houston office because of its lack of profits
					Offices
			Total Company		Houston		Dallas
Sales			$750,000	100.0%	$150,000	100.0%	$600,000	100.0%
Variable Expenses			405,000	54.0%	45,000	30.0%	360,000	60.0%
Contribution Margin			345,000	46.0%	105,000	70.0%	240,000	40.0%
Traceable Fixed Expenses			168,000	22.4%	78,000	52.0%	90,000	15.0%
Office Segment Margin			177,000	23.6%	$27,000	18.0%	$150,000	25.0%
Common fixed expenses not traceable to individual offices			150,000	20.0%	30,000	20.0%	120,000	20.0%
Net operating income			$27,000	3.6%	($3,000)	-2.0%	$30,000	5.0%
Required:
Answer the following questions. Treat the information in each question independently of each of the others. Use the Answer Sheet tab to enter your answers.
4.	Assume that sales in Houston increase by $50,000 next year, while the Dallas office remains unchanged. Also assume no changes in fixed costs.
		Increase in sales:	$ 50,000
	a.	Prepare a new segmented income statement for the company, similar to the one you prepared in your answer to question 1, that shows how this increase in Houston's sales would affect the company. Include both dollar amounts and percentages.
	b.	Observe from your new segmented income statement that the contribution margin ratio for the Houston office has remained unchanged while the segment margin ratio for the Houston office has changed. How do you explain the change in the segment margin ratio?

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