Question

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 morth's companywide income statement and prepared the absorption format segmented income statement shown below Total Company Commercial Residential $930,000 $310,eoe $620,000 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income 623,100170,500452,600 306,900 139 50 167,400 288,e00 128,000 160,000 18,900 $ 11,500 $ 7,400 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 $69,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $74,000 of fixed expenses that would be avoided if the Commercial segment i% dropped, bnd S52.000 of fixed expenses that would be avoided if the Residential segment is dropped 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 23,000 and $46,000, 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

Answer 1

4 schedule commercial residential total total selling and administrative expenses 310000 620000 930000common fixed expenses 69000 74000 52000 195000 93000 288000 sales fixed expenses of commercial division variable cost of goods sold variable selling and administrative expenses Total variable cost 452600623100fixed expenses of residential division 170500 31000 201500 6200093000total fixed selling and administrative expenses 514600| 716100| |variable portion (930000 x 10% total selling and administrative expenses contribution margin contribution margin to sales ratio C A-B 108500 105400 213900 D=C/A 0.35 0.17 0.23 fixed selling and administrative expenses 74000 52000 195000 Net operation income F = C-E 34500 53400 18900 5 & 6) Break even point in doller sales G E/D 211429 305882 847826 variable cost of goods sold variable selling and administrative expenses Total variable cost 170500 15500 186000 452600623100 31000 46500 483600 669600 A x 5% contribution margin contribution margin to sales ratio NEW fixed selling and administrative expenses K New break even points in doller sales l A-H 124000 0.4 97000 242500 136400 260400 0.22 0.28 98000 445455