Question

Piedmont Company segments its business into two regions—North and South. The company prepared the contribution format segmented income statement as shown:

		Total Company			North			South
Sales	$	825,000		$	550,000		$	275,000
Variable expenses		495,000			385,000			110,000
Contribution margin		330,000			165,000			165,000
Traceable fixed expenses		144,000			72,000			72,000
Segment margin		186,000		$	93,000		$	93,000
Common fixed expenses		64,000
Net operating income	$	122,000

Required:

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

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

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

(For all requirements, round your intermediate calculations to 2 decimal places. Round your final answers to the nearest dollar.)

Answer 1

Requirement 1:

Break even point Company wide:

Break even point = Fixed cost / Contribution margin Ratio

Contribution margin ratio = Sales - Variable cost / Sales * 100

= 825,000 - 495,000 / 825,000 * 100

= (330,000 / 825,000) *100

= 0.40* 100

Contribution margin ratio = 40%

Break even point = $208,000 / 40%

Break even point = $520,000

Note : Fixed cost = Traceable fixed expenses + common fixed expenses

= 144,000 + 64,000

Fixed cost = $208,000

Requirement 2 :

Bep sales for (North )

Break even point = Fixed cost / Contribution margin Ratio

Contribution margin ratio = Sales - Variable cost / Sales * 100

= $550,000 - $385,000 / $550,000 * 100

= ($165,000 / $550,000) *100

Contribution margin = 0.30 * 100 = 30%

Break even point = $72,000 / 30% = $240,000

Requirement 3 :

Break even point (South)

Break even point = Fixed cost / Contribution margin Ratio

Contribution margin ratio = Sales - Variable cost / Sales * 100

= $275,000 - $110,000 / $275,000 * 100

= ($165,000 / $275,000) * 100

Contribution margin = 0.6 *100 = 60%

Break Even point = $72,000 / 60% = $120,000