Petteway Corporation has two divisions: Home Division and Commercial Division. The following report is for the most recent operating period: Total CompanyHome DivisionCommercial DivisionSales$702,000$354,000$348,000Variable expenses$242,460$138,060$104,400Traceable fixed expenses$325,000$152,000$173,000Common fixed expense$77,220$38,940$38,280 The common fixed expenses have been allocated to the divisions on the basis of sales. Required: a. What is the Home Division's break-even in sales dollars?b. What is the Commercial Division's break-even in sales dollars?c. What is the company's overall break-even in sales dollars?
What will be an ideal response?
| Total Company | Home Division | Commercial Division | ||||||
| Sales | $ | 702,000 | $ | 354,000 | $ | 348,000 | ||
| Variable expenses | 242,460 | 138,060 | 104,400 | |||||
| Contribution margin | 459,540 | 215,940 | 243,600 | |||||
| Traceable fixed expenses | 325,000 | 152,000 | 173,000 | |||||
| Segment margin | 134,540 | $ | 63,940 | $ | 70,600 | |||
| Common fixed expenses | 77,220 | |||||||
| Net operating income | $ | 57,320 | ||||||
a.
Home Division break-even:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $215,940 ÷ $354,000 = 0.610
Dollar sales for a segment to break even = Traceable fixed expenses ÷ Segment CM ratio
= $152,000 ÷ 0.610 = $249,180
b.
Commercial Division break-even:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $243,600 ÷ $348,000 = 0.700
Dollar sales for a segment to break even = Traceable fixed expenses ÷ Segment CM ratio
= $173,000 ÷ 0.700 = $247,143
c.
The company's overall break-even sales:
CM ratio = Contribution margin ÷ Sales
= $459,540 ÷ $702,000 = 0.655 (rounded)
Total fixed expenses = Total traceable fixed expenses + Common fixed expenses
= $325,000 + $77,220 = $402,220
Dollar sales to break even = Total fixed expenses ÷ CM ratio
= $402,220 ÷ 0.655 = $614,437 (using the unrounded CM ratio)
You might also like to view...
It is mandatory for countries to notify the WTO when they enter into preferential trade agreements
Indicate whether the statement is true or false
To qualify as cash equivalents, investments must be readily convertible to a known amount of cash, so that when cash is needed, the investments can be easily liquidated
Indicate whether the statement is true or false
Which statement is correct?
a. compiled programs are very susceptible to unauthorized modification b. the source program library stores application programs in source code form c. modifications are made to programs in machine code language d. the source program library management system increases operating efficiency
The practice of calculating the markup as a percentage of the ____________________ is used by most retailers
Fill in the blank(s) with correct word