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 Coat of goods sold Gross margin Selling and administrative expenses Net operating income Total Company $ 810,000 540,100 261,900 256,000 $ 5,900 Commercial Residential $ 270,000 $ 540,000 394,200 145,800 144,000 $ 1,800 153,900 116,100 112,000 $ 4,100 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 $81,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $58,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $36,000 of fixed expenses that would disappear if the Residential segment is dropped.
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 Coat of goods sold Gross margin Selling and administrative expenses Net operating income Total Company $ 810,000 540,100 261,900 256,000 $ 5,900 Commercial Residential $ 270,000 $ 540,000 394,200 145,800 144,000 $ 1,800 153,900 116,100 112,000 $ 4,100 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 $81,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $58,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $36,000 of fixed expenses that would disappear if the Residential segment is dropped.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
$15,000 and $30,000, 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 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
Coat of goods sold
Gross margin
Selling and administrative expenses
Net operating incone
Total
Company
$ 810,000
540,100
261,900
256,000
$ 5,900
Commercial Residential
$ 270,000
$540,000
153,900
116,100
112,000
$ 4,100
394,200
145,800
144,000
$ 1,800
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 $81,000 of common fixed expenses that would continue to be
incurred even if the Commercial or Residential segments are discontinued, $58,000 of fixed expenses that would disappear if the
Commercial segment is dropped, and $36,000 of fixed expenses that would disappear if the Residential segment is dropped.
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Step 1: Define break-even point
VIEWStep 2: Computation of Companywide Break even point in dollar sales is as follows:
VIEWStep 3: Computation of Segment's Break even point in dollar sales is as follows:
VIEWStep 4: Computation of Segment's Revised Break even point in dollar sales is as follows:
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