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 $1,020,000 669,800 350,200 312,000 $ 38,200 Commercial Residential $340,000 $ 680,000 180,200 489,600 159,800 190,400 140,000 172,000 $ 19,800 $ 18,400 In preparing these statements, the intern determined that Toxaway's only variable selling and administrative expense is a 10% sales E 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? Complete this question by entering your answers in the tabs below. Req 1 Reg 2A Req 2B Req3 Reg 4 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 ONO Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Reg 2B Reg 3 Reg 4 Reg 5 Reg 6 Reg 7 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 Complete this question by entering your answers in the tabs below. Req 1 Reg 2A Reg 2B Req3 Reg 4 Reg 5 Reg 6 Req 7 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? O Sales O Cost of goods sold O Gross margin Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Reg 2B Reg 3 Reg 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? Yes ONO
