Question

Piedmont Company segments its business into two regions—North and South. The company prepared the contribution format segmented income statement as shown:

		Total Company			North			South
Sales	$	812,500		$	650,000		$	162,500
Variable expenses		552,500			520,000			32,500
Contribution margin		260,000			130,000			130,000
Traceable fixed expenses		134,000			67,000			67,000
Segment margin		126,000		$	63,000		$	63,000
Common fixed expenses		54,000
Net operating income	$	72,000

Required:

1. Compute the companywide break-even point in dollar sales.

2. Compute the break-even point in dollar sales for the North region.

3. Compute the break-even point in dollar sales for the South region.

Answer 1

1. Company wide, Break Even point in dollar sales.

​​​​​​For whole company,

Total fixed costs

= traceable fixed expenses+common fixed expenses = $134000+$54000 = $188000.

Contribution margin ratio

= (contribution margin ÷ sales)×100% = ($260000÷812500)×100 = 32%

BREAK EVEN POINT ( IN $ )

= TOTAL FIXED COSTS ÷ CONTRIBUTION MARGIN RATIO

= $188000 ÷ 32%

= $587500.

2. North Region, Break even point in dollar sales.

For north region,

fixed costs = $67000

Contribution margin ratio

= (Contribution margin ÷ sales )×100 = ($130000 ÷ $650000)×100 = 20%

BREAK EVEN POINT ( IN $ )

= $67000 ÷ 20%

= $335000.

3. South Region, Break even point in dollar sales

For south region,

fixed costs = $67000

Contribution margin ratio

= (Contribution margin ÷ sales)×100 = ($130000÷$162500)×100 = 80%

BREAK EVEN POINT ( IN $ )

= $67000 ÷ 80%

= $83750.

_____×_____

ALL THE BEST

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