Problem 7-24 (Algo) Companywide and Segment Break-Even Analysis; Decision Making (L07-4, LO7-5) 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 Het operating income Total Company Comercial $ 1,050,000 $ 350,000 682,500 178,500 367,500 171,500 320,000 144,000 $ 47,500 $ 27,500 Residential $ 700,000 504,000 196,000 176,000 $ 20,000 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 $57,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued. $90,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $68,000 of fixed expenses that would disappear 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 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 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 soles representatives in the Commercial and Residential Divisions a total monthly salary of $17,500 and $35,000, 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 Req 1 Reg 2A Req 2B Reg 3 Reg 4 Req 5 Req 6 Req 7 Do you agree with the intern's decision to use an absorption format for her segmented income statement? Yes ONO & Reqi Req 2A > Reg 1 Reg 2A Reg 2B Reg 3 Reg 4 Reg 5 Reg 6 Req 7 Based on a review of the intern's segmented income statement, how much of the company's common fixed expenses did she allocate to the Commercial and Residential segments? Commercial Residential Common fixed expenses Reg 1 Reg 2A Reg 2B Req3 Reg 4 Req 5 Req 6 Req 7 Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments? OYes O No Reg 1 Reg 2A Reg 2B Reg 3 Reg 4 Reg 5 Reg 6 Req 7 Redo the intern's segmented income statement using the contribution format Toxaway Company Income Statement Total Company Commercial Residential Variable expenses Total variable expenses Reg 1 Reg 2A Reg 2B Reg 3 Reg 4 Reg 5 Reg 6 Req 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.) Break-even point Reg 1 Req 2A Reg 2B Reg 3 Reg 4 Reg 5 Req Reg 7 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 answer to the nearest whole dollar amount.) Commercial Residential Division Division Break-even point Req1 Req 2A Reg 2B Req3 Reg 4 Req 5 Reg 6 Reg 7 Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $17,500 and $35,000, 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.) Show less Commercial Division Residential Division Break-even point
