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$ 825,000555,500269,500260,000$ 9,500Commercial Residential$ 550,000401,500$ 275,000154,000121,000114,000$ 7,000In 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 $79,500 of common fixed expenses that would continue to beincurred even if the Commercial or Residential segments are discontinued, $60,000 of fixed expenses that would disappear if theCommercial segment is dropped, and $38,000 of fixed expenses that would disappear if the Residential segment is dropped.< PrevRequired: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 andResidential 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 $32,000, respectively, and to lower its companywide sales commission percentage from 10% to 5%. Calculate the newbreak-even point in dollar sales for the Commercial Division and the Residential Division.Complete this question by entering your answers in the tabs below.148,500146,000$ 2,5005 of 5 #Next > Selling and administrative expensesNet operating incomeIn 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 $79,500 of common fixed expenses that would continue to beincurred even if the Commercial or Residential segments are discontinued, $60,000 of fixed expenses that would disappear if theCommercial segment is dropped, and $38,000 of fixed expenses that would disappear if the Residential segment is dropped.Required:1. Do you agree with the intern's decision to use an absorption format for her segmented income statement?2. Based on a review of the intern's segmented income statement.a. How much of the company's common fixed expenses did she allocate to the Commercial and Residential segments?b. Which of the following three allocation bases did she most likely used to allocate common fixed expenses to the Commercial andResidential segments: () sales, (b) cost of goods sold, or (c) gross margin?Complete this question by entering your answers in the tabs below.Req 13. Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments?4. Redo the intern's segmented income statement using the contribution format.5. Compute the companywide break-even point in dollar sales.Req 2A555,500269,500260,000$ 9,5006. 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 $32,000, respectively, and to lower its companywide sales commission percentage from 10% to 5%. Calculate the newbreak-even point in dollar sales for the Commercial Division and the Residential Division.Req 2BCommon fixed expensesReq 3Commercial154,000121,000114,000$ 7,000ResidentialReq 4< Prev55401,500148,500146,000$ 2,500Req 5Based on a review of the intern's segmented income statement, how much of the company's common fixed expenses did sheallocate to the Commercial and Residential segments?5 of 5wwELEReq 6Req 7Next >

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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 $ 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.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q