Question - Crossfire Company segments its business into two regions-East and West. The company prepared a contribution format segmented income statement as 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
|
340,000
|
60,000
|
80,000
|
|
Segment margin
|
85,000
|
$65,000
|
$20,000
|
|
Common fixed expenses
|
70,000
|
|
|
|
Net operating income
|
$15,000
|
|
|
Required:
1. Compute the companywide break-even point in dollar sales.
2. Compute the break-even point in dollar sales for the East region.
3. Compute the break-even point in dollar sales for the West region.
4. Prepare a new segmented income statement based on the break-even dollar sales that you computed in requirements 2 and 3. Use the same format as shown above. What is Crossfire's net operating income (loss) in your new segmented income statement?
5. Do you think that Crossfire should allocate its common fixed expenses to the East and West regions when computing the break-even points for each region?