Total Company East West Sales .... $900,000 $600,000 $300,000 Variable expenses. 675,000 480,000 195,000 Contribution margin 225,000 120,000 105,000 Traceable fixed expenses 141,000 50,000 91,000 Segment margin ..... Common fixed expenses.. 84,000 $ 70,000 $ 14,000 59,000 Net operating income.... $ 25,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Crossfire Company segments its business into two regions—East and West. The company prepared a contribution format segmented income statement as shown below:
Required:
1. Compute the companywide break-even point in dollar sales.
2. Compute the break-even point in dollar sales for the East region.
3. Compute the break-even point in dollar sales for the West region.
4. Prepare a new segmented income statement based on the break-even dollar sales that you computed in requirements 2 and 3. Use the same format as shown above. What is Crossfire’s net operating income (loss) in your new segmented income statement?
5. Do you think that Crossfire should allocate its common fixed expenses to the East and West regions when computing the break-even points for each region? Why?
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