total company commercial residential

sales 750000 250000 500000

cost of goods sold 500000 140000 360000

gross margin 250000 110000 140000

selling and administrative expenses 240000 104000 136000

net operating income 10000 6000 4000

In preparing these statements, the intern determined that Baxter and Holmes' 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 would be avoided if the Commercial segment is dropped, and $38,000 of fixed expenses would be avoided if the Residential segment is dropped.

Q1.Compute the company-wide break-even point in dollars.

Q2.The Divisional managers want to circulate your report to other members of the management team, so they have asked you to include in your report a section that explains CVP analysis. Specifically, they want you to identify and explain the following points, supported by relevant literature:

a. Advantages that a CVP analysis can bring to the company.

b. Difficulties the company could experience in the calculations involved in CVP analysis

c. Dangers that management should be aware of in using the information derived from the CVP analysis