Question

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

	Total Company			East			West
Sales	$	915,000		$	610,000		$	305,000
Variable expenses		732,000			518,500			213,500
Contribution margin		183,000			91,500			91,500
Traceable fixed expenses		111,000			51,000			60,000
Segment margin		72,000		$	40,500		$	31,500
Common fixed expenses		60,000
Net operating income	$	12,000

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?

___________________________________________________________________________________________________________________________________________________

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 intermediate calculations to 2 decimal places.

	Break-Even point
Dollar sales for the whole company
Dollar sales for the East region
Dollar sales for the West region

_________________________________________________________________________________

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?

	Total Company	East	West

_____________________________________________________________________________

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?
No?

Answer 1

	Total company	East	West
Contribution margin	183000	91500	91500
Divide by Sales	915000	610000	305000
Contribution margin ratio	20%	15%	30%
Break even point = Fixed expenses/ Contribution margin ratio
1
Compnaywide Break even point	855000	=(111000+60000)/20%
2
Break even point East region	340000	=51000/15%
3
Break even point West region	200000	=60000/30%
4
	Total company	East	West
Sales	540000	340000	200000
Variable expenses	429000	289000	140000
Contribution margin	111000	51000	60000
Traceable fixed expenses	111000	51000	60000
Segment margin	0	0	0
Common fixed expenses	60000
Net operating loss	(60000)
5
No, Common fixed expenses should not be allocated