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 divisions Commer- statements that the company's divisional managers could use to calculate their break-even points cial and Residential. The company's accounting intern was asked to prepare segmented income 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 Sales Cost of goods sold Gross margin. Selling and administrative expenses Net operating income.. $750,000 $250,000 500,000 140,000 250,000 110,000 240.000 104,000 $ 10,000 $ 6,000 $500,000 360,000 140,000 136.000 $ 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 Com- mercial or Residential segments are discontinued, $55,000 of fixed expenses that would be avoided if the Commericial 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? Why? 2. Based on a review of the intern's segmented income statement: 2. How much of the 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 use to allocate common fixed expenses to the Commercial and Residential segments: (a) sales, (b) cost of goods sold, or (c) gross margin