Question

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	$	1,156,250	$	925,000	$	231,250
Variable expenses		786,250		740,000		46,250
Contribution margin		370,000		185,000		185,000
Traceable fixed expenses		156,000		78,000		78,000
Segment margin		214,000	$	107,000	$	107,000
Common fixed expenses		68,000
Net operating income	$	146,000

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. (Round your break-even dollar sales to the nearest whole number.)

     

Answer 1

Answer of Part 1:

Total Fixed Expense = Traceable Fixed Expenses + Common Fixed Expenses
Total Fixed Expense = $156,000 + $68,000
Total Fixed Expense = $224,000

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $370,000 / $1,156,250
Contribution Margin Ratio = 0.32

Break Even in Dollar Sales = Total Fixed Expense / Contribution Margin Ratio
Break Even in Dollar Sales = $224,000 / 0.32
Break Even in Dollar Sales = $700,000

Answer of Part 2:

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $185,000 / $925,000
Contribution Margin Ratio = 0.2

Break Even Point in Dollar Sales = Fixed Expense/ Contribution Margin Ratio
Break Even Point in Dollar Sales = $78,000 / 0.2
Break Even Point in Dollar Sales = $390,000

Answer of Part 3:

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $185,000 / $231,250
Contribution Margin Ratio = 0.8

Break Even Point in Dollar Sales = Fixed Expense/ Contribution Margin Ratio
Break Even Point in Dollar Sales = $78,000 / 0.8
Break Even Point in Dollar Sales = $97,500