4. Redo the intern’s segmented income statement using the contribution format. 5. 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.
4. Redo the intern’s segmented income statement using the contribution format. 5. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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4. Redo the intern’s segmented income statement using the contribution format.
5. 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 $22,000 and $44,000, 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.
Transcribed Image Text:### Toxaway Company Financial Analysis
Toxaway Company is a merchandiser that segments its business into two primary divisions—Commercial and Residential. Recently, an accounting intern within the company was tasked with the preparation of segmented income statements. These statements are essential tools for divisional managers to calculate break-even points and make strategic decisions. The intern utilized the prior month's companywide income statement to develop the detailed segmented income statement presented in the absorption format below:
#### Segmented Income Statement
| Category | Total Company | Commercial | Residential |
|------------------------------|---------------|------------|-------------|
| **Sales** | $915,000 | $305,000 | $610,000 |
| **Cost of Goods Sold** | $585,600 | $152,500 | $433,100 |
| **Gross Margin** | $329,400 | $152,500 | $176,900 |
| **Selling and Administrative Expenses** | $284,000 | $126,800 | $158,000 |
| **Net Operating Income** | $45,400 | $26,500 | $18,900 |
### Analysis of Costs and Expenses
In preparing the segment-specific statements, the intern identified that Toxaway's variable selling and administrative expenses are exclusively tied to a 10% sales commission on all sales. Fixed expenses for the company are more complex, including:
- $70,500 of common fixed expenses which continue regardless of the segment’s operational status.
- $72,000 of fixed expenses that would cease if the Commercial segment is discontinued.
- $50,000 of fixed expenses that would cease if the Residential segment is discontinued.
These insights are crucial for understanding the financial dynamics of each segment and making informed managerial decisions. The breakdown facilitates strategic evaluation for decisions regarding segment sustainability and profitability.
This detailed financial excerpt supports educational understandings of company financial segmenting and highlights the importance of dissecting general income statements into specific, actionable segments.
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