Therrell Corporation has two divisions: Bulb Division and Seed Division. The following report is for the most recent operating period: Bulb DivisionSeed DivisionSales$304,000$183,000Variable expenses$79,040$38,430Traceable fixed expenses$162,000$93,000Common fixed expense$48,640$29,280 The common fixed expenses have been allocated to the divisions on the basis of sales. Required:a. What is the Bulb Division's break-even in sales dollars?b. What is the Seed 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 | Bulb Division | Seed Division | ||||||
| Sales | $ | 487,000 | $ | 304,000 | $ | 183,000 | ||
| Variable expenses | 117,470 | 79,040 | 38,430 | |||||
| Contribution margin | 369,530 | 224,960 | 144,570 | |||||
| Traceable fixed expenses | 255,000 | 162,000 | 93,000 | |||||
| Segment margin | 114,530 | $ | 62,960 | $ | 51,570 | |||
| Common fixed expenses | 77,920 | |||||||
| Net operating income | $ | 36,610 | ||||||
a.
Bulb Division break-even:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $224,960 ÷ $304,000 = 0.740
Dollar sales for a segment to break even = Traceable fixed expenses ÷ Segment CM ratio
= $162,000 ÷ 0.740 = $218,919
b.
Seed Division break-even:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $144,570 ÷ $183,000 = 0.790
Dollar sales for a segment to break even = Traceable fixed expenses ÷ Segment CM ratio
= $93,000 ÷ 0.790 = $117,722
c.
The company's overall break-even sales:
CM ratio = Contribution margin ÷ Sales
= $369,530 ÷ $487,000 = 0.759 (rounded)
Total fixed expenses = Total traceable fixed expenses + Common fixed expenses
= $255,000 + $77,920 = $332,920
Dollar sales to break even = Total fixed expenses ÷ CM ratio
= $332,920 ÷ 0.759 = $438,752 (using the unrounded CM ratio)
Business
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