Question

Crossfire Company segments its business into two regions—East and West. The company prepared the contribution format segmented income statement shown below:

	Total Company		East		West
Sales	$	750,000	$	500,000	$	250,000
Variable expenses		525,000		375,000		150,000
Contribution margin		225,000		125,000		100,000
Traceable fixed expenses		140,000		60,000		80,000
Segment margin		85,000	$	65,000	$	20,000
Common fixed expenses		70,000
Net operating income	$	15,000
1. Compute the companywide break-even point in dollar sales. (Round intermediate calculations to two decimal places.)                2. Compute the break-even point in dollar sales for the East region. (Round intermediate calculations to two decimal places.)                 3. Compute the break-even point in dollar sales for the West region. (Round intermediate calculations to two decimal places.)                 4. Prepare a new segmented income statement based on the break-even dollar sales that you computed in requirements 2 and 3. (Round intermediate calculations to two decimal places.)

Answer 1

1. Computation of the company wide break-even point in dollar sales:

Dollar sales for company to break even = (Traceable fixed expenses + Common fixed expenses) / Overall CM ratio
= ($140,000 + $70,000) / ($225,000 / $750,000)
= $210,000 / 0.30
= $700,000

2. Computation of the break-even point in dollar sales for the East region:

Dollar sales for a segment to break even = Segment traceable fixed expenses / Segment CM ratio
= $60,000 / ($125,000 / $500,000)
= $60,000 / 0.25
= $240,000

3. Computation of the break-even point in dollar sales for the West region:  

Dollar sales for a segment to break even = Segment traceable fixed expenses / Segment CM ratio
= $80,000 / ($100,000 / $250,000)
= $80,000 / 0.40
= $200,000

4. Preparation of a new segmented income statement based on the break-even dollar sales:

	Total	East	West
Sales	$440,000	$240,000	$200,000
Variable expenses	$300,000	$180,000	$120,000
Contribution margin	$140,000	$60,000	$80,000
Traceable fixed expenses	140,000	60,000	80,000
Segment margin	0	0	0
Common fixed expenses	70,000
Net operating income(Loss)	($70,000)

  Variable expenses:
East = $375,000 / $500,000 x $240,000 = $180,000
West = $150,000 / $250,000 x $200,000 = $120,000