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 $ 915,000 585, 600 329, 400 284,000 $ 45, 400 Commercial $ 305,000 152, 500 152, 500 126,000 $ 26,500 Residential $ 610,000 433, 100 176,900 158,000 $ 18,900 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 $70,500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $72,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $50,000 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 () 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 companywide break-even point in dollar sales. 6. Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division. 7. Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $22,000 and $44,000, 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. Do you agree with the intern's decision to use an absorption format for her segmented income statement? Yes No Based on a review of the intern's segmented income statement, how much of the company's common fixed expenses did she allocate to the Commercial and Residential segments? Commercial Residential Common fixed expenses Based on a review of the intern's segmented income statement, which of the following three allocation bases did she most likely used to allocate common fixed expenses to the Commercial and Residential segments? Sales Cost of goods sold Gross margin Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments? OYes INo 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.) Break-even point Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division. (Round CM ratio to 2 decimal places and final answer to the nearest whole dollar amount.) Commercial Residential Division Division Break-even point Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $22,000 and $44,000, 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. (Round CM ratio to 2 decimal places and final answers to the nearest whole dollar amount.) Show less Commercial Residential Division Division Break-even point
