Crossfire Company segments its business into two regions-East and West. The comp

Question

Crossfire Company segments its business into two regions-East and West. The company prepared a contribution format segmented income statement as shown below: Total Company West Sales Variable expenses Contribution margin Traceable fixed expenses Segment margin Common fixed expenses $1,140,000 855,000 285,000 144,000 141,000 72,000 $69,000 East 760,000 577,600 182,400 63,000 s 380,000 277,400 102,600 81,000 $ 119,400 $ 21,600 Net operating income Required: 1. Compute the companywide break-even point in dollar sales. 2. Compute the break-even point in dollar sales for the East region 3. Compute the break-even point in dollar sales for the West region. 4. Prepare a new segmented income statement based on the break-even dollar sales that you computed in requirements 2 and 3. Use the same format as shown above. What is Crossfire's net operating income (loss) in your new segmented income statement? 5. Do you think that Crossfire should allocate its common fixed expenses to the East and West regions when computing the break-even points for each region? Complete this question by entering your answers in the tabs below. Req 1 to 3 Req 4 Req 5 1. Compute the companywide break-even point in dollar sales. 2. Compute the break-even point in dollar sales for the East region. 3. Compute the break-even point in dollar sales for the West region (Round intermediate calculations to 2 decimal places) Break-Even point Dollar sales for the whole company Dollar sales for the East region Dollar sales for the West region Req 1 to 3 Req 4 >

Explanation / Answer

Formula- BEP: Fixed cost / Contribution per unit OR Total Fixed cost / PV ratio

1) Break even Sales of Whole Company= Traceable fixed cost + common fixed cost / PV ratio

144000+72000 = $ 864000 25%(note1)   

[NOTE 1] i.e. PV Ratio = contribution/sales

285000/1140000

=25%

2) Breakeven sales of East segment= Segment Traceable Fixed cost / PV Ratio

63000 = $ 262500 24%(note2)

[NOTE 2] PV Ratio= 182400/ 760000

= 24%

3) likewise, Breakeven Sales of West Segment=   81000 = $300000 27%(note3)

[NOTE 3] PV Ratio= 102600/ 380000

= 27%

4) Whole Company East West

Sales Based on Req 2&3 562500 262500 300000

Less: Variable Cost (418500) (199500) (219000)

Contribution margin 144000 63000 81000

Less: Traceable Fixed Cost 144000 63000 81000

Segment Margin Nil Nil Nil

Less: Common Fixed Cost 72000   

Net operating Income/ (Loss) (72000)

5) No, Company should'nt allocate its common Fixed expenses to East and West Segments, As this cost is not traceable to individual segments and this would not affect segment level decision.  

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