1. Do you agree with the intern’s decision to use an absorption format for her segmented income statement?2. Based on a review of the intern’s segmented income statement.a. How much of the company’s common fixed expenses did she allocate to the Commercial and Residential segments?b. 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? Toxaway Company is a merchandiser that segments its business into two divisions-Commercial and Residential. The company'saccounting intern was asked to prepare segmented income statements that the company's divisional managers could use to calculatetheir break-even points and make decisions. She took the prior month's companywide income statement and prepared the absorptionformat segmented income statement shown below:SalesCost of goods soldGross marginSelling and administrative expensesNet operating incomeTotalCompany$ 915,000585,600Commercial Residential$ 305,000 $ 610,000152,500433,100152,500329,400284,000 126,000176,900158,000$ 45,400 $ 26,500 $ 18,900In preparing these statements, the intern determined that Toxaway's only variable selling and administrative expense is a 10% salescommission on all sales. The company's total fixed expenses include $70,500 of common fixed expenses that would continue to beincurred even if the Commercial or Residential segments are discontinued, $72,000 of fixed expenses that would be avoided if theCommercial segment is dropped, and $50,000 of fixed expenses that would be avoided if the Residential segment is dropped.

Fixed expenses are expenses that are fixed and does not vary with the number of units produced or…

Answered: 1. Do you agree with the intern’s…

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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1. Do you agree with the intern’s decision to use an absorption format for her segmented income statement?

2. Based on a review of the intern’s segmented income statement.

a. How much of the company’s common fixed expenses did she allocate to the Commercial and Residential segments?

b. 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?

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:
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income
Total
Company
$ 915,000
585,600
Commercial Residential
$ 305,000 $ 610,000
152,500
433,100
152,500
329,400
284,000 126,000
176,900
158,000
$ 45,400 $ 26,500 $ 18,900
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 $70,500 of common fixed expenses that would continue to be
incurred even if the Commercial or Residential segments are discontinued, $72,000 of fixed expenses that would be avoided if the
Commercial segment is dropped, and $50,000 of fixed expenses that would be avoided if the Residential segment is dropped.

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