Koff Corporation has two divisions: Garden Division and Farm Division. The following report is for the most recent operating period: Total CompanyGarden DivisionFarm DivisionSales$265,000 $163,000 $102,000Variable expenses 105,390 63,570 41,820Contribution margin 159,610 99,430 60,180Traceable fixed expenses 110,000 68,000 42,000Segment margin 49,610 $31,430 $18,180Common fixed expenses 31,800 Net operating income$17,810 Required:a. What is the Garden Division's break-even in sales dollars?b. What is the Farm Division's break-even in sales dollars?c. What is the company's overall break-even in sales dollars?d. What would be the company's overall net operating income if the company operated at its two division's break-even points?

Question

What will be an ideal response?

Answer 1

a.

Garden Division break-even:

Segment CM ratio = Segment contribution margin ÷ Segment sales

= $99,430 ÷ $163,000 = 0.610

Dollar sales for a segment to break even = Traceable fixed expenses ÷ Segment CM ratio

= $68,000 ÷ 0.610 = $111,475

 

b.

Farm Division break-even:

Segment CM ratio = Segment contribution margin ÷ Segment sales

= $60,180 ÷ $102,000 = 0.590

Dollar sales for a segment to break even = Traceable fixed expenses ÷ Segment CM ratio

= $42,000 ÷ 0.590 = $71,186

 

c.

The company's overall break-even sales:

CM ratio = Contribution margin ÷ Sales

= $159,610 ÷ $265,000 = 0.602 (rounded)

Total fixed expenses = Total traceable fixed expenses + Common fixed expenses

= $110,000 + $31,800 = $141,800

Dollar sales to break even = Total fixed expenses ÷ CM ratio

= $141,800 ÷ 0.602 = $235,430 (using the unrounded CM ratio)

 

d.

If the company operates at the break-even points for its two divisions, it will have a net operating loss of $31,800 because it will not cover its common fixed expense of $31,800.