Toxaway Company is a merchandiser that segments its business into two divisions-Commercial and Residential. The companys 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 CommercialResidential $1,020,000 $340,000 $680,000 669,800 180,200 489,600 350,200 159,800 190,400 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income 312,000 140,000 172,000 $38,200 19,800 18,400 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 $60,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $86,000 of fixed expenses that would be avoided if the Commericial segment is dropped, and $64,000 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 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? 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 Divisiorn 7. Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $15,500 and $31,000, 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. 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 Do you agree with the intern's decision to use an absorption format for her segmented income statement
