Exercise 6-5 Companywide and Segment Break-Even Analysis [LO6-5) Piedmont Compan
ID: 2541292 • Letter: E
Question
Exercise 6-5 Companywide and Segment Break-Even Analysis [LO6-5) Piedmont Company segments its business into two regions-North and South. The company prepared the format segmented income statement shown below Total CompanyNorthSouth $525,000 $350,000 $175,000 315,000 245,000 70,000 Sales Variable expenses Contribution margin 210,000 105,000 105,000 63,000 63,000 Traceable fixed expenses Segment margin Common fixed expenses 126,000 84,000 42,000 42,000 52,000 Net operating incomeS $ 32,000 Required: 1. Compute the companywide break-even point in dollar sales 2. Compute the break-even point in dollar sales for the North region, 3. Compute the break-even point in dollar sales for the South region. (Round your break-even doila sales to the nearest whole number.) References eBook &Resources; Companywide and Analysis [LO6-4Explanation / Answer
Solution:
Part 1 – Companywide Break Even point in dollars
Break Even Point in dollars = Total Fixed Costs / Contribution Margin Ratio
We need to calculate the fixed cost and contribution margin ratio for company as a whole.
Contribution Margin Ratio = Total Contribution Margin 210,000 / Sales 525,000 x 100 = 40%
Total Fixed Cost for a company = Traceable fixed expenses + Common fixed expense
= 126,000 + 52,000
= $178,000
Break Even Point in dollars = Total Fixed Costs $178,000 / Contribution Margin Ratio40%
= $445,000
Part 2 – Break Even Point in dollar sales for the North region
Break Even Point in dollars = Total Fixed Costs / Contribution Margin Ratio
Total Fixed Costs for North Region = 63,000
Contribution Margin Ratio = Total Contribution Margin for North region 105,000 / Sales 350,000 x 100 = 30%
Break Even Point in dollars = Total Fixed Costs $63,000 / Contribution Margin Ratio 30% = $210,000
Part 3 -- Break Even Point in dollar sales for the South region
Break Even Point in dollars = Total Fixed Costs / Contribution Margin Ratio
Total Fixed Costs for South Region = 63,000
Contribution Margin Ratio = Total Contribution Margin for North region 105,000 / Sales 175,000 x 100 = 60%
Break Even Point in dollars = Total Fixed Costs $63,000 / Contribution Margin Ratio 60% = $105,000
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