Toxaway Company is a merchandiser with two divisions$-$Commercial and Residential. The company's accounting intern was asked to

prepare segmented income statements 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:

In preparing these statements, the intern determined Toxaway's only variable selling and administrative expense is a $10\%$ sales

commission on all sales. The company's total fixed expenses include $$73,500$ of common fixed expenses that will continue even if the

Commercial or Residential segment is discontinued, $$68,000$ of fixed expenses that will disappear if the Commercial segment is

dropped, and $$46,000$ of fixed expenses that will disappear if the Residential segment is dropped.

Required:

Do you agree with the intern's decision to use an absorption format for her segmented income statement?

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 use to allocate common fixed expenses to the Commercial and

Residential segments: $($a$)$ sales, $($b$)$ cost of goods sold, or $($c$)$ gross margin?

Do you agree with the intern's decision to allocate common fixed expenses to the Commercial and Residential segments?

Redo the intern's segmented income st$$tement using the contribution format.

Compute the companywide break$-$even point in dollar sales.

Compute the break$-$even point in dollar sales for the Commercial Division and for the Residential Division.

Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of

$$20,000$ and $$40,000,$ 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.

Required $2$B

Do you agree with the intern's decision to use an absorption format for her segmented income statement?