Help me answer accounting question Toxaway Company is a merchandiser that segmen
ID: 2424453 • Letter: H
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Help me answer accounting question
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 $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. Required: 1. Do you agree with the intern's decision to use an absorption format for her segmented income statement? Yes No 2-a. 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? 2-b Do you agree with her decision to allocate the common fixed expenses to the Commercial and Residential segments? Yes No 3. Redo the intern's segmented income statement using the contribution format. 4. 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.)Explanation / Answer
Toxaway company Segmented Income Statement Details Total company $ Commercial $ Residential $ Sales 750,000.00 250,000.00 500,000.00 Cost of Goods sold 500,000.00 140,000.00 360,000.00 Gross Margin 250,000.00 110,000.00 140,000.00 % share of Total gross margin 44.0% 56.0% Selling & Admin Cost 240,000.00 104,000.00 136,000.00 43.33% 56.67% Net Operating Income 10,000.00 6,000.00 4,000.00 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 ( 44 & 56% ) 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 750,000.00 250,000.00 500,000.00 Variable cost of goods sold 500,000.00 140,000.00 360,000.00 Variable selling & Admin cost 75,000.00 25,000.00 50,000.00 Total Variable cost 575,000.00 165,000.00 410,000.00 Contribution Margin 175,000.00 85,000.00 90,000.00 CM Ratio 23.33% 34.00% 18.00% Traceable Fixed costs 93,000.00 55,000.00 38,000.00 Segment Margin 82,000.00 30,000.00 52,000.00 Common Fixed cost 72,000.00 Total Fixed cost 165,000.00 Net Operating Income 10,000.00 4.00 Company wide Break Even $ Sales =165000/23.33% = $ 707,142.86 5.00 Divisionwise Break even $ Sales= $ 161,764.71 $ 211,111.11 6.00 Toxaway company Segmented Income Statement Contribution Margin Format Details Total company $ Commercial $ Residential $ Sales 750,000.00 250,000.00 500,000.00 Variable cost of goods sold 500,000.00 140,000.00 360,000.00 Variable selling & Admin cost 37,500.00 12,500.00 25,000.00 Total Variable cost 537,500.00 152,500.00 385,000.00 Contribution Margin 212,500.00 97,500.00 115,000.00 CM Ratio 28.33% 39.00% 23.00% Traceable Fixed costs 138,000.00 70,000.00 68,000.00 Segment Margin 74,500.00 27,500.00 47,000.00 Common Fixed cost 72,000.00 Total Fixed cost 210,000.00 Net Operating Income 2,500.00 Divisionwise Break even $ Sales= $ 179,487.18 $ 295,652.17
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