I\'m not sure if any of the answers I have are right. I am mainly struggling wit
ID: 2424433 • Letter: I
Question
I'm not sure if any of the answers I have are right. I am mainly struggling with #3 and #6.
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:
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 $60,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $64,000 of fixed expenses that would be avoided if the Residential segment is dropped, and $86,000 of fixed expenses that would be avoided if the Commericial segment is dropped.
Do you agree with the intern’s decision to use an absorption format for her segmented income statement?
Based on the intern’s segmented income statement, can you determine how she allocated the company’s common fixed expenses to the Commercial and Residential segments?
Do you agree with her decision to allocate the common fixed expenses to the Commercial and Residential segments?
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:
Toxaway Company Income Statement Total Company Commercial Residential Sales $1,020,000 $ 340,000 $ 680,000 Variable expenses: Variable admin Variable manufacturing overhead Variable selling Total variable expenses Contribution margin Traceable fixed expenses Segment margin Common fixed expenses 1,020,000 340,000 680,000 1,020,000 $ 340,000 $ 680,000 Net operating income $1,020,000Explanation / Answer
Toxaway company Segmented Income Statement Details Total company $ Commercial $ Residential $ Sales 1,020,000.00 340,000.00 680,000.00 Cost of Goods sold 669,800.00 180,200.00 489,600.00 Gross Margin 350,200.00 159,800.00 190,400.00 % share of Total gross margin 45.6% 54.4% Selling & Admin Cost 312,000.00 140,000.00 172,000.00 45% 55% Net Operating Income 38,200.00 19,800.00 18,400.00 1.00 As there is variable selling & admin cost and also traceable fixed cost of each division the current absorption costing is not agrreable. 2.00 In the current segmented income statement , total selling and admin costs have been allocated to the divisions on their % share of total gross margin ( 45 & 55% ) 2.b. I do not agree with this fixed cost allocation as there is a variable component is the selling & admin cost and also there are traceable fixed costs for each division that can be segregated. Assuming Cost of goods sold as variable cost as no information given Toxaway company Segmented Income Statement Contribution Margin Format Details Total company $ Commercial $ Residential $ Sales 1,020,000.00 340,000.00 680,000.00 Variable cost of goods sold 669,800.00 180,200.00 489,600.00 Variable selling & Admin cost 102,000.00 34,000.00 68,000.00 Total Variable cost 771,800.00 214,200.00 557,600.00 Contribution Margin 248,200.00 125,800.00 122,400.00 CM Ratio 24.33% 37.00% 18.00% Traceable Fixed costs 150,000.00 86,000.00 64,000.00 Segment Margin 98,200.00 39,800.00 58,400.00 Common Fixed cost 60,000.00 Total Fixed cost 210,000.00 Net Operating Income 38,200.00 4.00 Company wide Break Even $ Sales =210000/24.33% = $ 863,013.70 5.00 Divisionwise Break even $ Sales= $ 232,432.43 $ 355,555.56 6.00 Toxaway company Segmented Income Statement Contribution Margin Format Details Total company $ Commercial $ Residential $ Sales 1,020,000.00 340,000.00 680,000.00 Variable cost of goods sold 669,800.00 180,200.00 489,600.00 Variable selling & Admin cost 51,000.00 17,000.00 34,000.00 Total Variable cost 720,800.00 197,200.00 523,600.00 Contribution Margin 299,200.00 142,800.00 156,400.00 CM Ratio 29.33% 42.00% 23.00% Traceable Fixed costs 196,500.00 101,500.00 95,000.00 Segment Margin 102,700.00 41,300.00 61,400.00 Common Fixed cost 60,000.00 Total Fixed cost 256,500.00 Net Operating Income 42,700.00 Divisionwise Break even $ Sales= $ 241,666.67 $ 413,043.48