Toxaway Company is a merchandiser that segments its business into two divisions-Commercial and Residential. The company's accounting intern was asked to prepare segmented income statements that the company's divisional managers could use to calculate their break-even points and make decisions. She took the prior month's companywide income statement and prepared the absorption format segmented income statement shown below:
Total
Company |
Commercial |
Residential |
| Sales |
$ |
795,000 |
|
$ |
265,000 |
|
$ |
530,000 |
|
| Cost of goods sold |
|
535,300 |
|
|
148,400 |
|
|
386,900 |
|
| |
| Gross margin |
|
259,700 |
|
|
116,600 |
|
|
143,100 |
|
| Selling and administrative expenses |
|
252,000 |
|
|
110,000 |
|
|
142,000 |
|
| |
| Net operating income |
$ |
7,700 |
|
$ |
6,600 |
|
$ |
1,100 |
|
| |
In preparing these statements, the intern determined that Toxaway's only variable selling and administrative expense is a 10% sales commission on all sales. The company's total fixed expenses include $82,500 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $34,000 of fixed expenses that would be avoided if the Residential segment is dropped, and $56,000 of fixed expenses that would be avoided if the Commericial segment is dropped.
2. a) Based on the intern's segmented income statement, can you determine how she allocated the company's common fixed expenses to the Commercial and Residential segments?