Question

Piedmont Company segments its business into two regions—North and South. The company prepared the contribution format segmented income statement as shown: Total Company North South Sales $ 800,000 $ 600,000 $ 200,000 Variable expenses 560,000 480,000 80,000 Contribution margin 240,000 120,000 120,000 Traceable fixed expenses 126,000 63,000 63,000 Segment margin 114,000 $ 57,000 $ 57,000 Common fixed expenses 54,000 Net operating income $ 60,000 Required: 1. Compute the companywide break-even point in dollar sales. 2. Compute the break-even point in dollar sales for the North region. 3. Compute the break-even point in dollar sales for the South region. (For all requirements, round your intermediate calculations to 2 decimal places. Round your final answers to the nearest dollar.)

Answer 1

1. Companywide break-even point in dollar sales = $600,000

2. Break-even point in dollar sales for the North region = $315,000

3. Break-even point in dollar sales for the South region = $105,000

Step-by-step explanation:

From the question, we are given the following:

Total Company North South

Sales $ 800,000 $ 600,000 $ 200,000

Variable expenses 560,000 480,000 80,000

Contribution margin 240,000 120,000 120,000

Traceable fixed expenses 126,000 63,000 63,000

Segment margin 114,000 $ 57,000 $ 57,000

Common fixed expenses 54,000

Net operating income $ 60,000

Note that:

Break-even point in dollar sales = Fixed cost / Contribution margin ratio ………………… (1)

Therefore, we have:

1. Compute the companywide break-even point in dollar sales.

Fixed cost = Total company’s traceable fixed expenses + Common fixed expenses = $126,000 + $54,000 = $180,000

Contribution margin ratio = Total company’s Contribution margin / Total company’s Sales = $240,000 / $800,000 = 0.30

Using equation (1), we have:

Companywide break-even point in dollar sales = Fixed cost / Contribution margin ratio = $180,000 / 0.30 = $600,000

2. Compute the break-even point in dollar sales for the North region.

Fixed cost = North’s traceable fixed expenses = $63,000

Contribution margin ratio = North’s Contribution margin / North’s Sales = $120,000 / $600,000 = 0.20

Using equation (1), we have:

Break-even point in dollar sales for the North region = Fixed cost / Contribution margin ratio = $63,000 / 0.20 = $315,000

3. Compute the break-even point in dollar sales for the South region.

Fixed cost = South’s traceable fixed expenses = $63,000

Contribution margin ratio = South’s Contribution margin / South’s Sales = $120,000 / $200,000 = 0.60

Using equation (1), we have:

Break-even point in dollar sales for the South region = Fixed cost / Contribution margin ratio = $63,000 / 0.60 = $105,000