Toxaway Company is a merchandiser with two divisionsCommercial and Residential. The companys accounting intern was asked to prepare segmented income statements the companys divisional managers could use to calculate their break-even points and make decisions. She took the prior months companywide income statement and prepared the absorption format segmented income statement shown below:

	Total Company	Commercial	Residential
Sales	$ 945,000	$ 315,000	$ 630,000
Cost of goods sold	630,000	170,100	459,900
Gross margin	315,000	144,900	170,100
Selling and administrative expenses	292,000	130,000	162,000
Net operating income	$ 23,000	$ 14,900	$ 8,100

In preparing these statements, the intern determined Toxaways only variable selling and administrative expense is a 10% sales commission on all sales. The companys total fixed expenses include $67,500 of common fixed expenses that will continue even if the Commercial or Residential segment is discontinued, $76,000 of fixed expenses that will disappear if the Commercial segment is dropped, and $54,000 of fixed expenses that will disappear if the Residential segment is dropped.

Required:

1. Do you agree with the interns decision to use an absorption format for her segmented income statement?
2. Based on a review of the interns segmented income statement.
   1. How much of the companys common fixed expenses did she allocate to the Commercial and Residential segments?
   2. 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 interns decision to allocate common fixed expenses to the Commercial and Residential segments?
4. Redo the interns 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 $24,000 and $48,000, 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.