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: Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Total Company $ 780,000 517,400 262,600 248,000 $ 14,600 Commercial $ 260,000 143,000 117,000 108,000 $ 9,000 Residential $ 520,000 374,400 145,600 140,000 $ 5,600 In preparing the 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 $84,000 of common fixed expenses that will continue even if the Commercial or Residential segment is discontinued, $54,000 of fixed expenses that will disappear if the Commercial segment is dropped, and $32,000 of fixed expenses that will 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 (c) gross margin? 3. Do you agree with the intern's decision to allocate 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 $13,000 and $26,000, 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.

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 thise 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 $84,000 of common fixed expenses that will continue even if the Commercial or Residential segment is discontinued, $54,000 of fixed expenses that will disappear if the Commercial segment is dropped, and $32,000 of fixed expenses that will 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 (c) gross margin? 3. Do you agree with the intern's decision to allocate 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 $13,000 and $26,000, 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. 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 thisye 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 $84,000 of common fixed expenses that will continue even if the Commercial or Residential segment is discontinued, $54,000 of fixed expenses that will disappear if the Commercial segment is dropped, and $32,000 of fixed expenses that will 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 (c) gross margin? 3. Do you agree with the intern's decision to allocate 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 $13,000 and $26,000, 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