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 the contribution format segmented income statement shown below:

Compute the companywide break-even point in dollar sales. (Round intermediate calculations to two decimal places.)

Compute the break-even point in dollar sales for the East region. (Round intermediate calculations to two decimal places.

Compute the break-even point in dollar sales for the West region. (Round intermediate calculations to two decimal places.)

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?

Total
Company East West   Sales $ 915,000 $ 610,000   $ 305,000     Variable expenses 732,000   518,500   213,500     Contribution margin 183,000   91,500   91,500     Traceable fixed expenses 111,000   51,000   60,000     Segment margin 72,000   $ 40,500   $ 31,500     Common fixed expenses 60,000     Net operating income $ 12,000  

Explanation / Answer

1. the companywide break-even point in dollar sales= Total Fixed Costs / contribution margin in %

= 111000 + 60000 = $171000 / (183000 * 100 / 915000) = $855,000

2. the break-even point in dollar sales for the East region = $51000 / (91500 * 100 / $610000) = $340,000

3. the break-even point in dollar sales for the West region = $60000 / (91500 * 100 / $305000) = $200,000

4. a new segmented income statement based on the break-even dollar sales =

5. Yes, Crossfire should allocate its common fixed expenses to the East and West regions when computing the break-even points for each region. The basis of allocation could be 1) Sales turnover 2) Contribution margin 3) Independent Fixed costs ratio.

East West Sales (at Break even point) 340000 200000 Less: Variable costs 289000 140000 Contribution 51000 60000 Less: Fixed Costs (51000) (60000) Net Operating Income (at break even point) 0 0

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