EXERCISE 12-8 (15 MINUTES)

2. The $48,000 in traceable fixed expenses in Exercise 12-7 is now partly

traceable and partly common. When we segment Minneapolis by mar-

ket, only $33,000 remains a traceable fixed expense. This amount

represents costs such as advertising and salaries of individuals that arise

because of the existence of the Medical and Dental markets. The re-

maining $15,000 ($48,000 – $33,000) becomes a common cost when

Minneapolis is segmented by market. This amount would include costs

such as the salary of the manager of the Minneapolis office that could

not be avoided by eliminating either of the two market segments.