Question

newconnect.mheducation.com/llow/connect 6 Homework problems Toxaway Company is a merchandiser that segments its business into two divisions commercial and Residential. The company's accounting intern was asked to prepare segmented income statements that the company's divisional managers could use to calculate their break even points and make decisions. She took the prior month's companywide income statement and prepared the absorption format segmented income statement shown below: Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Total Company $ 915,000 585,600 329,480 284,000 $ 45,400 Comercial Residential $305,eee 610 eee 1525 433, 100 152,500 176,980 126,000 158,00 $ 26,500 18.900 In preparing these statements, the intern determined that Toxaway's only variable selling and administrative expense is a 10% sales commission on all sales. The company's total fixed expenses include $70.500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued. $72,000 of fixed expenses that would be avoided if the Commercial segment is dropped, and $50,000 of fixed expenses that would be avoided if the Residential segment is dropped Required: 1. Do you agree with the intern's decision to use an absorption format for her segmented income statement? 2. Based on a review of the intern's segmented income statement. a. How much of the company's common fixed expenses did she allocate to the Commercial and Residential segments? b. Which of the following three allocation bases did she most likely used to allocate common fixed expenses to the Commercial and Residential segments: (a) sales. (b) cost of goods sold, or (c) gross margin? 3. Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments? 4. Redo the intern's segmented income statement using the contribution format 5. Compute the companywide break-even point in dollar sales. 6. Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division 7. Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $22,000 and $44,000, respectively, and to lower its companywide sales commission percentage from 109 to 5% Calculate the new break-even point in dollar sales for the Commercial Division and the Residential Division Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Reg 2B Reg 3 Redo the Intern's segmented income statement using the contribution format. Next > ere to search

please answer question 4, 5, 6 and and 7. thnks

Answer 1

Values given in question
		Total Company	Commercial	Residential
	Sales	915000	305000	610000
Less	Cost of Goods Sold	585600	152500	433100
	Gross Profit	329400	152500	176900
Less	Selling and Admin. Expenses	284000	126000	158000
	Net Operating Income	45400	26500	18900
Required
4	Redo the intern's segmented income statement using the contribution format
5	Compute the company vide breakeven point in dollar sales
6	Compute the breakeven point in dollar sales for the commercial and residential division
7	Assume the company decided to pay its sales representatives in the commercial and residential divisions a total monthly salary of
	22000 and 44000 to reduce the company vide sales commission from 10% to 5%. Calculate New BEP in dollar Sales of commercial and residential divisions
Firstly we need to allocate the fixed and variable costs
Allocation of Fixed Cost and Variable Cost
Calculation of Total Fixed Costs		Amount in $
		Total Company	Commercial	Residential
	Total Selling & Adm. Exp. (a)	284000	126000	158000
	Variable Selling & Adm. Exp(10% of Sales) (b)	91500	30500	61000
	Fixed Cost( c=a-b)	192500	95500	97000
	Specific Fixed Cost (Given) (d)	122000	72000	50000
	Allocated Common Fixed Cost (e=c-d)	70500	23500	47000
Calculation of Variable Cost		Amount in $
		Total Company	Commercial	Residential
	Cost of Goods Sold	585600	152500	433100
	Variable Selling & Adm. Exp(10% of Sales)	91500	30500	61000
	Total Variable Cost	677100	183000	494100
Answer to Q No. 4
	Segmented Income Statement using Contribution Format
		Amount in $
		Total Company	Commercial	Residential
	Sales (a)	915000	305000	610000
Less	Variable Cost (b)	677100	183000	494100
	Contribution (c= a-b)	237900	122000	115900
Less	Fixed Cost	192500	95500	97000
	Net Operating Income	45400	26500	18900
	Formulas
	BEP Sales in $ =	Fixed Cost / PV Ratio
	PV Ratio =	(Sale - Variable Cost)/ Sale
Answer to Question No. 5 &6		Amount in $
		Total Company	Commercial	Residential
	Sale	915000	305000	610000
	Variable Cost (b)	677100	183000	494100
	Fixed Cost	192500	95500	97000
	PV Ratio(using above formula)	0.26	0.4	0.19
	BEP in dollar sales (using above formula)	740385	238750	510526
Answer to Ques No. 7
	Assume the company decided to pay its sales representatives in the commercial and residential divisions a total monthly salary of
	22000 and 44000 to reduce the company vide sales commission from 10% to 5%. Calculate New BEP in dollar Sales of commercial and residential divisions
	Revised Values will be
		Amount in $
	Calculation of New Variable Cost	Total Company	Commercial	Residential
	Cost of Goods Sold	585600	152500	433100
	Variable Selling & Adm. Exp(5% of Sales)	45750	15250	30500
	Total Variable Cost	631350	167750	463600
	Calculation of New Fixed Cost	Amount in $
		Total Company	Commercial	Residential
	Old Fixed Cost	192500	95500	97000
Add:	Remuneration to Sales Executives	66000	22000	44000
		258500	117500	141000
	Calculation of New BEP	Amount in $
		Total Company	Commercial	Residential
	Sale	915000	305000	610000
	Variable Cost (b)	631350	167750	463600
	Fixed Cost	258500	117500	141000
	PV Ratio(using above formula)	0.31	0.45	0.24
	BEP in dollar sales (using above formula)	833871	261111	587500