Question

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 $ 975,000 $ 325,000 $ 650,000 Cost of goods sold 663,000 182,000 481,000 Gross margin 312,000 143,000 169,000 Selling and administrative expenses 300,000 134,000 166,000 Net operating income $ 12,000 $ 9,000 $ 3,000 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 $64,500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $80,000 of fixed expenses that would be avoided if the Commericial segment is dropped, and $58,000 of fixed expenses that would be avoided if the Residential segment is dropped. 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 $12,500 and $25,000, 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.

Answer 1

Solat on GRen that otal Compan Comme a 45,000 $825000, $ 65,000 cost of qoods Sold 663,000 .เเ2,000, u8 1,000 Onos Mar,03000, 69,000 Sellha and admnsalRya erpansas 00,000 13u000 Th company's total fpze do penso oncludQ460|500 d so 000 bneat eNon pont Pa dotav Sales

11510003»510006so,000 Sales canablo eipenses 6631000$ 1«2,00000 Cost ot oods sold 2O 546,000 our000 company's Braak - even nt ?n dola's 451000

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Residentfa 42,500 3(00D e d Cost 192500 ResPdental$55,000 4 3,000 t101500 6000 325000 ·$126,500 3,3 5000