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 a contribution format segmented income statement as shown below:

Required:

1. Compute the companywide break-even point in dollar sales.

2. Compute the break-even point in dollar sales for the East region.

3. Compute the break-even point in dollar sales for the West region.

4. Prepare a new segmented income statement based on the break-even dollar sales that you computed in requirements 2 and 3. Use the same format as shown above. What is Crossfire’s net operating income (loss) in your new segmented income statement?

5. Do you think that Crossfire should allocate its common fixed expenses to the East and West regions when computing the break-even points for each region?

Total Company East West Sales $ 1,020,000 $ 680,000 $ 340,000 Variable expenses 765,000 544,000 221,000 Contribution margin 255,000 136,000 119,000 Traceable fixed expenses 156,000 58,000 98,000 Segment margin 99,000 $ 78,000 $ 21,000 Common fixed expenses 65,000 Net operating income $ 34,000

Explanation / Answer

Break-even point : A break even point is the point at which the sales exactly covers its expenses

Companywide break even point= Fixed costs /Contribution margin

Break even point for east region = Fixed costs / Contribution margin for east region

58000/136000*680000

Break even point for west region=Fixed costs/ Contribution margin for west region

98000/119000*340000

4

Segmented Income statement

The net operating loss at the breakeven point for the east and west region is 416000

5. Yes the company should allocate the common fixed expenses to the east and west region when computing break even point for each region, as the allocation would result in an increase in the amount of break even sales for each region. This will ultimately increase the amount of segment margin for east and west region.

1

Companywide break even point= Fixed costs /Contribution margin

221000/255000 884000.00

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