Question

Toxaway Company is a merchandiser that segments its business into two divisions-Commercial and Residential The company's accounting intem 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. Total Company Comercial Residential Sales $ 990,000 $330.000 $60. DOD Cost of goods sold 663.300 181.500 481.800 GLOSS Marcin 326. TOD 14B. 300 178.300 Selling and administrative experte 304.000 196.000 1dB.000 Het aparating income $22. TOD 12.500 10.200 In preparing these statements, the intem determined that Towaway's only variable selling and administrative expense is a 10% sales commission on all sales. The company's total fixed expenses include 563,000 of common foed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $82.000 of fived expenses that would be avoided if the Commercial segment is dropped, and $60,000 of fived 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 intem'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 (o 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 company wide 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 $13,500 and $27.000, respectively, and to lower its companywide sales commission percentage from 10% 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 24 Res 20 Reg 3 Reg+ Req Rego Req7 Do you agree with the intern's decision to use an absorption format for her segmented income statement? Yes ONG
​​​​​​

Answer 1

1. No.

A contribution format income statement should be used for a segmented income statement and not the absorption format.

2a. Company's common fixed expenses allocated to segments:

	Commercial	Residential	Total
Selling and administrative expenses	136000	168000
Less variable sales commission (10% of sales)	33000	66000
Less direct fixed expenses	82000	60000
Common fixed expenses allocated to segment	21000	42000	63000

2b. Allocation base used for allocating common fixed expenses: (a) Sales

Commercial: $63000 x $330000/$990000 = $21000

Residential: $63000 x $660000/$990000 = $42000

3. No.

4.

Toxaway Company
Income Statement
	Total Company	Commercial	Residential
Sales	990000	330000	660000
Variable expenses:
Cost of goods sold	663300	181500	481800
Sales commission	99000	33000	66000
Total variable expenses	762300	214500	547800
Contribution margin	227700	115500	112200
Direct fixed expenses	142000	82000	60000
Segment margin	85700	33500	52200
Common fixed expenses	63000
Net operating income	22700

Per HOMEWORKLIB RULES, first 4 parts have been answered. Please post the remaining separately. Thank you.