Question
Crossfire Company segments its business into two regions-East and West. The company prepared a contribution format...
Crossfire Company segments its business into two regions-East and West. The company prepared a contribution format segmented income statement as shown below: Sales Variable expenses Contribution margin Traceable fixed expenses Segment margin Common fixed expenses Net operating income Total Company $ 945,000 756,000 189,000 115,000 74,000 62,000 $ 12,000 East $ 630,000 529, 200 100,800 52,000 $ 48,800 West $ 315,000 226,800 88, 200 63,000 $ 25,200 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? Complete this question by entering your answers in the tabs below. Req 1 to 3 Req 4 Req 5 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. (Round your intermediate calculations to 2 decimal places.) Show les Break-Even Point Dollar sales for the whole company Dollar sales for the East region Dollar sales for the West region Reg 1 to 3 Req 4 >
Req 1 to 3 Req 4 Req 5 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? (Round your intermediate calculations to 2 decimal places.) Total Company East West < Req 1 to 3 Req 5
Complete this question by entering your answers in the tabs below. Req 1 to 3 Reg 4 Req 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? Yes 10 No < Req 4 Reg 5
Answers
1) Total Company Fixed Expenses
= Traceable Fixed Expenses + Common Fixed Expenses
= $ 115,000 + $ 62,000
= $ 177,000Company wide Contribution ratio
= Contribution Margin / Sales
= $ 189,000 / $ 945,00020% Company wide Breakeven Point in dollar sales
= Total Company Fixed Expenses / Company wide Cont. ratio
= $ 177,000 / 20%$ 885,000 2 & 3 ) East Region West Region Contribution Margin Ratio
= Contribution Margin / Sales16%
( $ 100,800 / $ 630,000 )28%
( $ 88,200 / $ 315,000 )Breakeven Point in dollar sales
= Traceable Fixed Expenses / Contribution Margin Ratio$ 325,000
( $ 52,000 / 16% )$ 225,000
( $ 63,000 / 28% )4) Total Company East West Sales $ 550,000 $ 325,000 $ 225,000 Less: Variable expenses
( $ 756,000 / $ 945,000 = 80% )($ 435,000) ($ 273,000)
(( $ 529,200 / $ 630,000 x $ 325,000 )($ 162,000 )
( $ 226,800 / $ 315,000 x $ 225,000)Contribution margin $ 115,000 $ 52,000 $ 63,000 Less: Traceable fixed expenses ($ 115,000) ($ 52,000) ($ 63,000) Segment margin $ 0 $ 0 $ 0 Less: Common fixed expenses ($ 62,000) Net operating Loss ($ 62,000) 5) No Since these Common Fixed Expenses are not relating to Opearating divisions of East and West Region
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