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: Total Company Commercial Residential $600,000 426,000 Sales $900,000 579,000 $300,000 Cost of qoods sold 153,000 147,000 Groas margin Selling and adminiatrative 321,000 174,000 280,000 124,000 156,000 expenses $ 41,000 Net operating income 23,000 18,000 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 Commercial or Residential segments are discontinued, $70,0000 of fixed expenses that would be avoided if the Commericlal segment is dropped, and $48,000 of fixed expenses that would be avoided if the Residentlal 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 Residentlal 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 intem's segmented income statement using the contribution format. 5. Compute the companywide break-even polnt in dollar sales. 6, Compute the break-even point in dollar sales for the Commercial Dvision and for the Residential Division, 7. Assume the company decided to pay its sales representatives in the Commercial and Residential Dvisions 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 Residentlal Division. Complete this question by entering your answers in the tabs below. Req 2A Req 3 Req S Req 6 Req 1 Req 2B Req 4 Req 7 Do you agree with the intern's decision to use an absorption format for her segmented income statement? OYes ONo Req 1 Req 2A
