Piedmont Company segments its business into two regionsâNorthand South. The company prepared the contribution format segmentedincome statement shown below:
Total
Company North South Sales $ 600,000 $ 400,000 $ 200,000 Variable expenses 360,000 280,000 80,000 Contributionmargin 240,000 120,000 120,000 Traceable fixedexpenses 120,000 60,000 60,000 Segment margin 120,000 $ 60,000 $ 60,000 Common fixedexpenses 50,000 Net operatingincome $ 70,000
Required:
1. Compute thecompanywide break-even point in dollar sales .
2. Compute thebreak-even point in dollar sales for the North region.
3. Compute thebreak-even point in dollar sales for the South region.
Piedmont Company segments its business into two regionsâNorthand South. The company prepared the contribution format segmentedincome statement shown below: |
| Total Company | North | South | ||||
| Sales | $ | 600,000 | $ | 400,000 | $ | 200,000 |
| Variable expenses | 360,000 | 280,000 | 80,000 | |||
| Contributionmargin | 240,000 | 120,000 | 120,000 | |||
| Traceable fixedexpenses | 120,000 | 60,000 | 60,000 | |||
| Segment margin | 120,000 | $ | 60,000 | $ | 60,000 | |
| Common fixedexpenses | 50,000 | |||||
| Net operatingincome | $ | 70,000 | ||||
| Required: |
| 1. | Compute thecompanywide break-even point in dollar sales . |
| 2. | Compute thebreak-even point in dollar sales for the North region. |
| 3. | Compute thebreak-even point in dollar sales for the South region. |
Related questions
Toxaway Company is a merchandiser that segments its businessinto two divisionsâCommercial and Residential. The companyâsaccounting intern was asked to prepare segmented income statementsthat the companyâs divisional managers could use to calculate theirbreak-even points and make decisions. She took the prior monthâscompanywide income statement and prepared the absorption formatsegmented income statement shown below: |
| Total Company | Commercial | Residential | |||||||
| Sales | $ | 915,000 | $ | 305,000 | $ | 610,000 | |||
| Cost of goodssold | 585,600 | 152,500 | 433,100 | ||||||
| Gross margin | 329,400 | 152,500 | 176,900 | ||||||
| Selling andadministrative expenses | 284,000 | 126,000 | 158,000 | ||||||
| Net operatingincome | $ | 45,400 | $ | 26,500 | $ | 18,900 | |||
In preparing these statements, the intern determined thatToxawayâs only variable selling and administrative expense is a 10%sales commission on all sales. The companyâs total fixed expensesinclude $70,500 of common fixed expenses that would continue to beincurred even if the Commercial or Residential segments arediscontinued, $50,000 of fixed expenses that would be avoided ifthe Residential segment is dropped, and $72,000 of fixed expensesthat would be avoided if the Commericial segment is dropped. |
| Required: |
| 1. | Do you agree with the internâs decision to use an absorptionformat for her segmented income statement? | ||||
|
| 2-a. | Based on the internâs segmented income statement, can youdetermine how she allocated the companyâs common fixed expenses tothe Commercial and Residential segments? |
| 2-b. | Do you agree with her decision to allocate the common fixedexpenses to the Commercial and Residential segments? | ||||
|
| 3. | Redo the internâssegmented income statement using the contribution format. |
| 4. | Compute the companywide break-even point in dollar sales?(Round intermediate calculations to 3 decimal places andfinal answer to the nearest whole dollar amount.) |
| 5. | Compute the break-even point in dollar sales for the CommercialDivision and for the Residential Division. (Round CM ratioto 2 decimal places and final answers to the nearest whole dollaramount.) |
| 6. | Assume the company decided to pay its sales representatives inthe Commercial and Residential Divisions a total monthly salary of$22,000 and $44,000, respectively, and to lower its companywidesales commission percentage from 10% to 5%. Calculate the newbreak-even point in dollar sales for the Commercial Division andthe Residential Division. (Round CM ratio to 2 decimalplaces and final answers to the nearest whole dollaramount.) |
