Toxaway Company Is a merchandiser that segments its business Into two divislons-Commerclal and Resldential. The company's accounting Intern was asked to prepare segmented Income statements that the company's divsional 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 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income $ 825,8e0 275,ee 55e,808 481,588 148,588 146,888 $9,508 7,ee2,5e8 555,588 269,588 26e,888 154,888 121,888 114,808 In preparing these statements, the intern determined that Toxaway's only variable selling and administrative expense is a 10% sales commisslon on all sales. The company's total fixed expenses Include $79,500 of common fixed expenses that would continue to be Incurred even if the Commerclal or Residential segments are discontinued, $60,000 of fixed expenses that would be avolded If the Commericlal 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? 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 Commerclal and Residential segments? b. Which of the following three allocation bases did she most lkely 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 companywlde break-even point In dollar sales. 6. Compute the break-even polnt In dollar sales for the Commercial DIvIsIon and for the Residential DIvislon. 7. Assume the company decided to pay Its sales representatives In the Commercial and Residential Divisions a total monthly salary of $16,000 and $32,000, 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 DIvislon and the Residential DIvislon. Complete this question by entering your answers in the tabs below Req 1 Req 2A Req 2B Req 3 Req 4 Req 5 Req 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.) reak-even
