Toxaway Company is a merchandiser that segments its business into two divisions—
ID: 2405735 • Letter: T
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 month’s companywide income statement and prepared the absorption format segmented income statement shown below:
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 $73,500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $68,000 of fixed expenses that would be avoided if the Commericial segment is dropped, and $46,000 of fixed expenses that would be avoided if the Residential segment is dropped.
Required:
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?
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 $20,000 and $40,000, 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.
TotalCompany Commercial Residential Sales $ 885,000 $ 295,000 $ 590,000 Cost of goods sold 572,300 153,400 418,900 Gross margin 312,700 141,600 171,100 Selling and administrative expenses 276,000 122,000 154,000 Net operating income $ 36,700 $ 19,600 $ 17,100
Explanation / Answer
2a.
4.
5.
6.
7.
Company's common fixed expenses allocated to segments: Commercial Residential Total Selling and administrative expenses 122000 154000 Less variable sales commission (10% on sales) 29500 59000 Less traceable fixed expenses 68000 46000 Common fixed expenses $ 24500 49000 73500Related Questions
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