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 Net operating income Total Company $840,000 557,200 282,800 264,000 Commercial $ 280,000 154,000 126,000 116,000 Residential $ 560,000 403,200 156,800 148,000 $ 18,800 $ 10,000 $ 8,800 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 $78,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $62,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $40,000 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?