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
Dallas ConstructionClients LandscapingClients
Sales $ 870,000 100% $580,000 100% $290,000 100%
Variable expenses 522,000 60 377,000 65 145,000 50
Contribution margin 348,000 40 203,000 35 145,000 50
Traceable fixed expenses 104,400 12 29,000 5 75,400 26
Market segment margin 243,600 28 $174,000 30% $69,600 24%
Common fixed expenses not
traceable to markets 26,100 3
Office segment margin
$ 217,500 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
$11,600. Marketing studies indicate that such a campaign would increase
sales in the construction market by $101,500 or increase sales in the
landscaping market by $87,000.
Required:
1a. Calculate the increased segment margin.
1b. In which of the markets would you recommend that the company focus its advertising campaign?
