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:

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?

Homework Answers

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
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