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Problem 6-24 Companywide and Segment Break-Even Analysis; Decision Making [LO6-4, LO6-5] 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: Total Company Commercial Residential $795.000 $265,000 $530,000 Sales 535,300 148.400 386.900 Cost of goods sold 259,700 143.100 Gross margin 116.600 252,000 Selling and administrative expenses 110.000 142.000 7,700 6.600 1,100 Net operating income 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 $82,500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, S34,000 of fixed expenses that would be avoided if the Residential segment is dropped, and S56,000 of fixed expenses that would be avoided if the Commericial segment is dropped. Required: 1. Do you agree with the intern's decision to use an absorption format for her segmented income statement? Yes No 2-a. Based on the intern's segmented income statement, can you determine how she allocated the company's common fixed expenses to the Commercial and Residential segments? Commercial Residential Commonfixed expenses 2-b. Do you agree with her decision to allocate the common fixed expenses to the Commercial and Residential segments? Yes No