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U Problem 6-24 Companywide and Segment Break-Even Analysis; Decision Making [LO6-4, L06-5) 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 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Total Company Commercial Residential $750,000 $250,000 $500,000 500,000 140,000 360, eee 250,000 110,000 148,888 240,000 184,000 136,000 $ 10,000 $6,000 $ 4,000 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 $72,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued. $55,000 of fixed expenses that would be avoided if the Commercial segment is dropped, and $38,000 of fixed expenses that would be avoided if the Residential segment is dropped. Required: 1. Do you agree with the intern's 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 of the company's common foxed 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 intern's 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 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 $15.000 and $30.000, 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 Answer is complete but not entirely correct. 17 point Complete this question by entering your answers in the tabs below. Rea 1 Reg 2A Red 20 Reg 3 Red Reg 5 Reg 6 Reg? Redo the intern's segmented income statement using the contribution format. Toxaway Company Income Statement Total Commercial Company Residential Sales 750,000 250.000 500 000 Vantees penses Cost of goods sold 500.000 140.000 360.000 Sales commissions 75.000 25.000 50,000 410,000 575.000 175.000 165,000 05.000 Tot vanable expenses Corbution Traceat fed expenses Segment margin Common fore expenses 93.000 DOO 90.000 55,000 35.000 82,000 $ 47 000 5 72.000 Net operating income 10.000 Check my work mode : This shows what is correct or Incorrect for the work you have c 6 17 points 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 $72,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $55,000 of fixed expenses that would be avoided if the Commercial segment is dropped, and $38,000 of fixed expenses that would be avoided if the Residential segment is dropped. Required: Reg 5 1. Do you agree with the intern's decision to use an absorption format gmented income statement? 2. Based on a review of the intem's segmented income statement. a. How much of the company's common fixed expenses did she allocate tolthe 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 intern's 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 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 $15,000 and $30,000, 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 Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Reg 1 Red 2A Reg 20 Reqs Reg 4 Reg 5 Reg 6 Reg 7 Compute the companywide break even point in dollar sales. (Round intermediate calculations to 3 decimal places and final answer to the nearest whole dollar amount.) S point 707.143
