Zable Corporation has two divisions: Town Division and Country Division. The following report is for the most recent operating period: Town DivisionCountry DivisionSales$235,000$192,000Variable expenses$103,400$105,600Traceable fixed expenses$80,000$58,000The company's common fixed expenses total $68,320.Required:a. What is the Town Division's break-even in sales dollars?b. What is the Country 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 | Town Division | Country Division | ||||||
| Sales | $ | 427,000 | $ | 235,000 | $ | 192,000 | ||
| Variable expenses | 209,000 | 103,400 | 105,600 | |||||
| Contribution margin | 218,000 | 131,600 | 86,400 | |||||
| Traceable fixed expenses | 138,000 | 80,000 | 58,000 | |||||
| Segment margin | 80,000 | $ | 51,600 | $ | 28,400 | |||
| Common fixed expenses | 68,320 | |||||||
| Net operating income | $ | 11,680 | ||||||
Town Division break-even:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $131,600 ÷ $235,000 = 0.560
Dollar sales for a segment to break even = Traceable fixed expenses ÷ Segment CM ratio
= $80,000 ÷ 0.560 = $142,857
b.
Country Division break-even:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $86,400 ÷ $192,000 = 0.450
Dollar sales for a segment to break even = Traceable fixed expenses ÷ Segment CM ratio
= $58,000 ÷ 0.450 = $128,889
c.
The company's overall break-even sales:
CM ratio = Contribution margin ÷ Sales
= $218,000 ÷ $427,000 = 0.511 (rounded)
Total fixed expenses = Total traceable fixed expenses + Common fixed expenses
= $138,000 + $68,320 = $206,320
Dollar sales to break even = Total fixed expenses ÷ CM ratio
= $206,320 ÷ 0.511 = $404,122 (using the unrounded CM ratio)
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