Crossfire Company segments its business into two regions—East and West. The company prepared a contribution format segmented income statement as shown below:
Total Company East West
Sales $ 1,120,000 $ 770,000 $ 350,000
Variable expenses 840,000 616,000 224,000
Contribution margin 280,000 154,000 126,000
Traceable fixed expenses 155,000 65,000 90,000
Segment margin 125,000 $ 89,000 $ 36,000
Common fixed expenses 70,000
Net operating income $ 55,000
Required:
1. Compute the companywide break-even point in dollar sales.
2. Compute the break-even point in dollar sales for the East region.
3. Compute the break-even point in dollar sales for the West region.
4. Prepare a new segmented income statement based on the break-even dollar sales that you computed in requirements 2 and 3. What is Crossfire’s net operating income (loss) in your new segmented income statement?
5. Do you think that Crossfire should allocate its common fixed expenses to the East and West regions when computing the break-even points for each region?