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	$	937,500		$	750,000		$	187,500
Variable expenses		637,500			600,000			37,500
Contribution margin		300,000			150,000			150,000
Traceable fixed expenses		152,000			76,000			76,000
Segment margin		148,000		$	74,000		$	74,000
Common fixed expenses		64,000
Net operating income	$	84,000

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.

Answer 1

Working Note :

Contribution margin ratio = (Contribution / sales) *100

,		Total Company	North	South
(i)	Contribution Margin	$         3,00,000	$      1,50,000	$      1,50,000
(ii)	Sales	$         9,37,500	$      7,50,000	$      1,87,500
(iii)	Contribution sales ratio [(i)/(ii)]*100	32%	20%	80%

1.

9omputing the companywide break-even point in dollar sales as follows:

Break Even Sales in Dollar =	Traceable fixed expenses + Common fixed expenses
	Company's Contribution Margin sales ratio

   = ( $ 1,52,000 + $ 64,000 ) / 32%

   = $ 6,75,000

2.

Computing the break-even point in dollar sales for the North region as follows:

Break Even Sales in Dollar =	Traceable fixed expenses
	Contribution Margin sales ratio

   = $ 76000 / 20%

= $ 3,80,000

3.

Computing the break-even point in dollar sales for the South region as follows:

Break Even Sales in Dollar =	Traceable fixed expenses
	Contribution Margin sales ratio

=    $ 76,000 /80%

=    $ 95,000

Note:

1. Break Even Point of a Particular Business segment is calculated by dividing its traceable fixed expenses by its contribution margin ratio.

2.Break Even Point of Companywide is calculated by dividing its traceable fixed expenses & Common fixed expenses by overall contribution margin ratio.