Crossfire Company segments its business into two regions—East and West. The comp

Question

Crossfire Company segments its business into two regions—East and West. The company prepared the contribution format segmented income statement shown below:

Compute the companywide break-even point in dollar sales. (Round intermediate calculations to two decimal places.)

      

       

Compute the break-even point in dollar sales for the East region. (Round intermediate calculations to two decimal places.)

    

          

Compute the break-even point in dollar sales for the West region. (Round intermediate calculations to two decimal places.)

     

         

         

Crossfire Company segments its business into two regions—East and West. The company prepared the contribution format segmented income statement shown below:

Explanation / Answer

1. Computation of the company wide break-even point in dollar sales:

Dollar sales for company to break even = (Traceable fixed expenses + Common fixed expenses) / Overall CM ratio
= ($140,000 + $70,000) / ($225,000 / $750,000)
= $210,000 / 0.30
= $700,000

2. Computation of the break-even point in dollar sales for the East region:

Dollar sales for a segment to break even = Segment traceable fixed expenses / Segment CM ratio
= $60,000 / ($125,000 / $500,000)
= $60,000 / 0.25
= $240,000

3. Computation of the break-even point in dollar sales for the West region:  

Dollar sales for a segment to break even = Segment traceable fixed expenses / Segment CM ratio
= $80,000 / ($100,000 / $250,000)
= $80,000 / 0.40
= $200,000

4. Preparation of a new segmented income statement based on the break-even dollar sales:

  Variable expenses:
East = $375,000 / $500,000 x $240,000 = $180,000
West = $150,000 / $250,000 x $200,000 = $120,000

Total East West Sales $440,000 $240,000 $200,000 Variable expenses $300,000 $180,000 $120,000 Contribution margin $140,000 $60,000 $80,000 Traceable fixed expenses 140,000 60,000 80,000 Segment margin 0 0 0 Common fixed expenses 70,000 Net operating income(Loss) ($70,000)

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