5-3-4

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 Total Company CommercialResidential Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income S 960,000 320,000 $640,000 467,200 172,800 164,000 S 27,200 18,400 $8,800 636,800 323,200 296,000 169,600 150,400 132,000 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 $66,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $56,000 of fixed expenses that would be avoided if the Residential segment is dropped, and $78,000 of fixed expenses that would be avoided if the Commericial segment is dropped