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 $ 975,000 663,000 312,000 300,000 $ 12,000 Commercial Residential $ 325,000 $ 650,000 182,000 481,000 143,000 169,000 134,000 166,000 $9,000 $3,000 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 $64,500 of common fixed expenses that would continue to be incurled even if the Commercial or Residential segments are discontinued, $80,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $58,000 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: (6) 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 segmenta? 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 $12,500 and $25,000, 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 Red Reg 5 Reg 6 Reg 7 Do you agree with the intern's decision to use an absorption format for her segmented income statement? Yes No Bon DADA 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 Reg 1 Reg 2A Reg 2B 18.g 3 Req 4 Reg 5 Req 6 Reg 7 Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments? OYes ONO Req 1 Req 2A Req 2B Reg 3 Reg 4 Reg 5 Redo the intern's segmented income statement using the contribution format. Toxaway Company Income Statement Total Company Commercial Residential Variable expenses: Total variable expenses Req 1 Req 2A Req 2B Reg 3 Reg 4 Compute the companywide break-even point in dollar sales. (Round inter answer to the nearest whole dollar amount.) Break-even point Assume the company decided to pay its sales representatives in the Commercial and Residential Divisiors a total monthly salary of $12,500 and $25,000, 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 Division Residential Division Break-even point
