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 $ 825,000 555,500 269,500 260,000 $9,500 Commercial Residential $ 275,000 154,000 121,000 114,000 $ 7,000 $ 550,000 401,500 148,500 146,000 $ 2,500 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 $79,500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $60,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $38,000 of fixed expenses that would disappear if the Residential segment is dropped. Required: 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? 3. Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments? toment using the contribution format.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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
$ 825,000
555,500
269,500
260,000
$ 9,500
Commercial Residential
$ 550,000
401,500
$ 275,000
154,000
121,000
114,000
$ 7,000
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 $79,500 of common fixed expenses that would continue to be
incurred even if the Commercial or Residential segments are discontinued, $60,000 of fixed expenses that would disappear if the
Commercial segment is dropped, and $38,000 of fixed expenses that would disappear if the Residential segment is dropped.
< Prev
Required:
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?
3. Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments?
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
$16,000 and $32,000, 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.
Complete this question by entering your answers in the tabs below.
148,500
146,000
$ 2,500
5 of 5 #
Next >
Transcribed Image Text: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 $ 825,000 555,500 269,500 260,000 $ 9,500 Commercial Residential $ 550,000 401,500 $ 275,000 154,000 121,000 114,000 $ 7,000 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 $79,500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $60,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $38,000 of fixed expenses that would disappear if the Residential segment is dropped. < Prev Required: 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? 3. Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments? 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 $16,000 and $32,000, 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. Complete this question by entering your answers in the tabs below. 148,500 146,000 $ 2,500 5 of 5 # Next >
Selling and administrative expenses
Net operating income
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 $79,500 of common fixed expenses that would continue to be
incurred even if the Commercial or Residential segments are discontinued, $60,000 of fixed expenses that would disappear if the
Commercial segment is dropped, and $38,000 of fixed expenses that would disappear if the Residential segment is dropped.
Required:
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: () sales, (b) cost of goods sold, or (c) gross margin?
Complete this question by entering your answers in the tabs below.
Req 1
3. Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments?
4. Redo the intern's segmented income statement using the contribution format.
5. Compute the companywide break-even point in dollar sales.
Req 2A
555,500
269,500
260,000
$ 9,500
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
$16,000 and $32,000, 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.
Req 2B
Common fixed expenses
Req 3
Commercial
154,000
121,000
114,000
$ 7,000
Residential
Req 4
< Prev
55
401,500
148,500
146,000
$ 2,500
Req 5
Based on a review of the intern's segmented income statement, how much of the company's common fixed expenses did she
allocate to the Commercial and Residential segments?
5 of 5
ww
ELE
Req 6
Req 7
Next >
Transcribed Image Text:Selling and administrative expenses Net operating income 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 $79,500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $60,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $38,000 of fixed expenses that would disappear if the Residential segment is dropped. Required: 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: () sales, (b) cost of goods sold, or (c) gross margin? Complete this question by entering your answers in the tabs below. Req 1 3. Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments? 4. Redo the intern's segmented income statement using the contribution format. 5. Compute the companywide break-even point in dollar sales. Req 2A 555,500 269,500 260,000 $ 9,500 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 $16,000 and $32,000, 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. Req 2B Common fixed expenses Req 3 Commercial 154,000 121,000 114,000 $ 7,000 Residential Req 4 < Prev 55 401,500 148,500 146,000 $ 2,500 Req 5 Based on a review of the intern's segmented income statement, how much of the company's common fixed expenses did she allocate to the Commercial and Residential segments? 5 of 5 ww ELE Req 6 Req 7 Next >
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