Question

Answers 1-6 are done. I need help with Number 7.

Problem 7-24 Companywide and Segment Break-Even Analysis; Decision Making

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
Sales	$	870,000		$	290,000		$	580,000
Cost of goods sold		571,300			153,700			417,600
Gross margin		298,700			136,300			162,400
Selling and administrative expenses		272,000			120,000			152,000
Net operating income	$	26,700		$	16,300		$	10,400

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 $75,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $66,000 of fixed expenses that would be avoided if the Commercial segment is dropped, and $44,000 of fixed expenses that would be avoided if the Residential segment is dropped.

Need help with this question:

7. Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $19,000 and $38,000, 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.

Here is the answer to Req 2A. 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 $25,000 $50,000

Here is the answer to Req 4: Redo the intern’s segmented income statement using the contribution format

Toxaway Company Income Statement Total Company Commercial Residential Sales $870,000 $290,000 $580,000 Variable expenses: Cost of goods sold 571,300 153,700 417,600 Sales commissions 87,000 29,000 58,000 Total variable expenses 658,300 182,700 475,600 Contribution margin 211,700 107,300 104,400 Traceable fixed expenses 110,000 66,000 44,000 101,700 $41,300 $60,400 Common fixed expenses 75,000 Net operating income $26,700

Here is the answer to Req 5: Compute the companywide break-even point in dollar sales.

	Break-even point $760,378

Here is the answer to Req 6: Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division.

	Commercial Division Residential Division Break-even point $178,378 $244,444

Answer 1

7. Calculate the new-breakeven point in dollar sales for commercial division and residential division as follows: 1 Segmented income statement using contribution format Commercial Residential 3 Sales $290,000 $580,000 4 Less: Variable expenses 5 Cost of goods sold $153,700 $417,600 6 Sales commission $14,500 $29,000 7 Total Variable expenses $168,200 $446,600 8 Contribution Margin $121,800 $133,400 9 Less: Traceable fixed expenses 10 Fixed expenses $66,000 $44,000 11 Salary to sales representatives $19.000 12 Total Traceable fixed expenses $85,000 $82,000 13 14 Contribution margin ratio 15 Dollar sales for a segment to break even 42% 23% $202,380.95 $356,521.74 Formulae:

с Segmented income statement using contribution format Commercial Residential 3 Sales 290000 580000 4 Less: Variable expenses 5 Cost of goods sold 153700 417600 6 Sales commission =B3*5% =C3*5% 7 Total Variable expenses =SUM(B5:B6) =SUM(C5:C6) 8 Contribution Margin =B3-B7 =C3-C7 9 Less: Traceable fixed expenses 10 Fixed expenses 66000 44000 11 Salary to sales representatives 19000 38000 12 Total Traceable fixed expenses =SUM(B10:B11) =SUM(C10:C11) 13 14 Contribution margin ratio =B8/B3 =C8/C3 15 Dollar sales for a segment to break even =B12/B14 =C12/C14 Compute dollar sales to break even for commercial division as follows: Break even point = Traceable fixed expenses Contribution margin ratio Break even point = $85,000 42% Break even point = $202380.95 Therefore, dollar sales to break even for commercial division is $202,380.95

Compute dollar sales to break even for residential division as follows: Traceable fixed expenses Break even point = - Contribution margin ratio $82,000 Break even point = 23% Break even point = $356521.74 Therefore, dollar sales to break even for residential division is $356521.74