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.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 18E
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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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