Question

Exercise 5-5 Companywide and Segment Break-Even Analysis [LO5-5]

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

		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.

Answer 1

Answer
	Total company	North	South
				sales	8,25,000	5,50,000	2,75,000
variable cost	4,95,000	3,85,000	1,10,000
contribution margin	3,30,000	1,65,000	1,65,000
treceable fixed cost	1,44,000	72,000	72,000
segment margin	1,86,000	93,000	93,000
common fixed cost	64,000
net operating income	1,22,000
Fixed cost	2,08,000	72,000	72,000
contribution margin ratio = contribution /sales	0.4	0.3	0.6
break even point in sales = fixed cost/contribution margin ratio	5,20,000	2,40,000	1,20,000