Problem 6-24 Companywide and Segment Break-Even Analysis; Decision Making [LO6-4, LO6-5]

Toxaway Company is a merchandiser that segments its business into two divisionsCommercial and Residential. The companys accounting intern was asked to prepare segmented income statements that the companys divisional managers could use to calculate their break-even points and make decisions. She took the prior months companywide income statement and prepared the absorption format segmented income statement shown below:

	Total Company			Commercial			Residential
Sales	$	900,000		$	300,000		$	600,000
Cost of goods sold		579,000			153,000			426,000
Gross margin		321,000			147,000			174,000
Selling and administrative expenses		280,000			124,000			156,000
Net operating income	$	41,000		$	23,000		$	18,000

In preparing these statements, the intern determined that Toxaways only variable selling and administrative expense is a 10% sales commission on all sales. The companys 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, $48,000 of fixed expenses that would be avoided if the Residential segment is dropped, and $70,000 of fixed expenses that would be avoided if the Commericial segment is dropped.

1.

Redo the interns segmented income statement using the contribution format.

2.

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.)

3.

Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division. (Round CM ratio to 2 decimal places and final answers to the nearest whole dollar amount.)

4.

Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $21,000 and $42,000, 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. (Round CM ratio to 2 decimal places and final answers to the nearest whole dollar amount.)