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	$	870,000		$	290,000		$	580,000
Cost of goods sold		571,300			153,700			417,600
Gross margin		298,700			136,300			162,400
Selling and administrative expenses		272,000			120,000			152,000
Net operating income	$	26,700		$	16,300		$	10,400

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 $75,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $66,000 of fixed expenses that would be avoided if the Commericial segment is dropped, and $44,000 of fixed expenses that would be avoided if the Residential segment is dropped.

Required:

2. Based on a review of the interns segmented income statement.

a. How much of the companys common fixed expenses did she allocate to the Commercial and Residential segments?

	Commercial	Residential
Common fixed expenses

4. Redo the interns segmented income statement using the contribution format.

Toxaway Company
Income Statement
	Total Company	Commercial	Residential
Sales
Variable expenses:
1
2
3
Total variable expenses
4
5
6
7
8
Net operating income (loss)

a. Options for Variable Exp Drop Downs (1,2,3):

-Administrative Expenses, Advertising, Beginning Merchandise Inventory, Common Fixed Expenses, Cost of Goods Sold, Depreciation, Direct Labor, Direct Materials, Ending Merchandise Inventory, Fixed Manufacturing Overhead, Indirect Labor, Indirect Materials, Purchases, Sales, Sales Commissions, Selling Expenses, Traceable Fixed Expenses, and Variable Manufacturing Overhead (**note there are 3 slots. it is possible not all will be filled**)

b. Options Under Total Variable Expenses (4)

-Contribution Margin or Gross Margin

c. Options Under Above (5)

-Administrative Expenses, Advertising, Beginning Merchandise Inventory, Common Fixed Expenses, Cost of Goods Sold, Depreciation, Direct Labor, Direct Materials, Ending Merchandise Inventory, Fixed Manufacturing Overhead, Indirect Labor, Indirect Materials, Purchases, Sales, Sales Commissions, Selling Expenses, Traceable Fixed Expenses, and Variable Manufacturing Overhead (**note there is 1 slot**)

d. Options Under Above (6)

-Segment Margin or Segment Loss

d. Options Under (c) (7,8)

-Administrative Expenses, Advertising, Beginning Merchandise Inventory, Common Fixed Expenses, Cost of Goods Sold, Depreciation, Direct Labor, Direct Materials, Ending Merchandise Inventory, Fixed Manufacturing Overhead, Indirect Labor, Indirect Materials, Purchases, Sales, Sales Commissions, Selling Expenses, Traceable Fixed Expenses, and Variable Manufacturing Overhead (**note there are 2 slots**)

5. Compute the companywide break-even point in dollar sales.

Break-Even Point=

6. Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division.

	Commercial Division	Residential Division
Break-even point

7. Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $19,000 and $38,000, 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.

	Commercial Division	Residential Division
Break-even point