Managerial Accounting. Lesson 6-04 & Lesson 6-05

Homework_ Chapter 6 a Saved Help References Toxaway Company is a merchandiser that segments its business into two divisionsCommercial 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 Commercial Residential 5 sales 1,005,000 $ 335,000 $ 670,000 Cost: of goods sold 670,000 180,900 489,100 Gross margin 335,000 154,100 180,900 Selling and administrative expenses 308,000 133,000 170,000 Net: operating income 5 27,000 $ 16,100 $ 10,900 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 xed expenses include $61,500 of common xed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $84,000 of xed expenses that would disappear if the Commercial segment ls dropped, and $62,000 of xed expenses that would disappear If the Residential segment is dropped. Required: 1. Do you agree with the interns decision to use an absorption format for her segmented income statement? 2, Based on a review of the intern's segmented income statement. a. How much ofthe company's common fixed expenses did she allocate to the Commercial and Residential segments? b. Which of the following three allocation bases did she most likely used to allocate common fixed expenses to the Commercial and Residential segments: (a) sales, (b) cost of goods sold, or (c) gross margin? 3. Do you agree with the interns decision to allocate the common fixed expenses 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 breakveven 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 $14,500 and $29,000, respectively. and to lower its companywide sales commission percentage from 10% to 5%. Calculate the new breakeven point in dollar sales for the Commercial Division and the Residential Division. Complete this question by entering your answers in the tabs below. Save & Exit Submit 8 Check my work