tire Company segments its business into two regions-East and West. The company p
ID: 2577111 • Letter: T
Question
tire Company segments its business into two regions-East and West. The company prepared the contribution format segmented income statement shown below: Total Company East 528,000 56,000 West Sales Variable expenses Contribution margirn Traceable fixed expenses Segment margin $ 990,000 742,500 247.500 147,000 660,000 $330,000 115,500 24,500 100,500 S 76,000 Common fixed expenses Net operating income 65,000 $ 35,500 Required 1. Compute the companywide break-even point in dollar sales. (Round intermediate calculations to two decimal places.) Break-even point in dollar sales 2. Compute the break-even point in dollar sales for the East region. (Round intermediate calculations to two decimal places.) Break-even point in dollar sales e calculations to two decimal places.) 3. Compute the break-even point in dollar sales for the West region. (Round intermediat Break-even point in dollar salesExplanation / Answer
1. Company Wide Break Even Point:
Segment Margin Ratio: East =80%, West = 20%
Share of East and West in Net Operating Income:
East = 84,000 x 80% = $67,200
West = 84,000 x 20% = $16,800
Contribution Margin Ratio:
East = 182,000 / 650,000 = 28%, West = 91,000 / 260,000 =35%
Margin of Safety Sales:
East = 67,200 / 28 x 100 = $240,000
West = 16,800 / 35 x 100 = $48,000
BEP Sale of East:
Actual Sales - MOS Sales
BEP Sales of East: 650,000 - 240,000 = $410,000
BEP Sales of West: 260,000 - 48,000 = $212,000
Total BEP Sales = $622,000
2. BEP of East:
MOS = Segment Margin / 28(Contribution Margin) x 100
MOS = 112,000 / 28 x 100 = $400,000
BEP = Actual Sales - MOS
BEP = 650,000 - 400,000 =$250,000
3. BEP of West:
MOS = Segment Margin / 28(Contribution Margin) x 100
MOS = 28,000 / 35 x 100 = $80,000
BEP = Actual Sales - MOS
BEP = 260,000 - 80,000 =$180,000
4. Income Statement:
East($)
West($)
Sales
250,000
180,000
- VC
180,000
117,000
Contribution
70,000
63,000
- Fixed Cost
70,000
63,000
Net Income
0
0
5. No
Common fixed expenses should not be allocated while computing BEP for each region.
East($)
West($)
Sales
250,000
180,000
- VC
180,000
117,000
Contribution
70,000
63,000
- Fixed Cost
70,000
63,000
Net Income
0
0
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