In preparing these statements, the intern determined that Toxaway’s only variabl
ID: 2444484 • Letter: I
Question
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 $72,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $38,000 of fixed expenses that would be avoided if the Residential segment is dropped, and $55,000 of fixed expenses that would be avoided if the Commericial segment is dropped.
1. Redo the intern’s segmented income statement using the contribution format.
2.
Compute the companywide break-even point in dollar sales? (Round intermediate calculations to 3 decimal places and final answer to the nearest whole dollar amount.)
Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division. (Round CM ratio to 2 decimal places and final answer to the nearest whole dollar amount.)
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. (Round CM ratio to 2 decimal places and final answer to the nearest whole dollar amount.)
Compute the companywide break-even point in dollar sales? (Round intermediate calculations to 3 decimal places and final answer to the nearest whole dollar amount.)
5.
Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division. (Round CM ratio to 2 decimal places and final answer to the nearest whole dollar amount.)
6.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. (Round CM ratio to 2 decimal places and final answer to the nearest whole dollar amount.)
TotalCompany Commercial Residential Sales $ 750,000 $ 250,000 $ 500,000 Cost of goods sold 500,000 140,000 360,000 Gross margin 250,000 110,000 140,000 Selling and administrative expenses 240,000 104,000 136,000 Net operating income $ 10,000 $ 6,000 $ 4,000
Explanation / Answer
5. Calculation of Break Even Point for both divison:
Calculation of Break even point:
Break Even Point = Fixed cost / CM Ratio
Break Even Point of Commercial : 148,600 / 0.3984 = $372,992
Break Even Point of Residential : 160,400 / 0.2528 = $634,494
Sales ratio = 0.33:0.67
Weighted Average Contribution Margin:
WACM: (Sales ratio of Commercial x Contribution ratio of Commercial) + (Sales ratio of Residential x Contribution ratio of Residential)
Weighted Average Contribution Margin: (0.33 x 0.3984) + (0.67 x 0.2528) = 0.30 OR 30%
Break Even Point of the Company= 72,000 / 0.30 = $240,000
Commercial Residential Sales 250,000 500,000 Less: Cost of goods sold 140,000 360,000 Less: Variable selling and administrative expenses 10,400 13,600 Contribution Margin 99,600 126,400 CM Ratio 39.84% 25.28%