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 $825,000 $550,000 $275,000
Variable expenses 495,000 385,000 110,000
Contribution margin 330,000 165,000 165,000
Traceable fixed expenses 156,000 78,000 78,000
Segment margin 174,000 $87,000 $87,000
Common fixed expenses 69,000
Net operating income $105,000

Required:
a. Compute the companywide break-even point in dollar sales.
b. Compute the break-even point in dollar sales for the North region.
c. Compute the break-even point in dollar sales for the South region.

Answer 1

A. 562,500

B. 260,000

C. 130,000

Step-by-step explanation:

First step is to find the Contribution margin ratio using this formula

Contribution margin ratio=Contribution margin÷Sales

Contribution margin 330,000 165,000 165,000

÷Divide by Sales 825,000 550,000 275,000

=Contribution margin ratio 40.00% 30.00% 60.00%

Second step is to find the Break even

Break even = Fixed expenses/Contribution margin ratio

1. Computation for the break-even point in dollar sales.

Dollar sales for company to break-even=

(156,000+69,000)/40%

Dollar sales for company to break=225,000/40%

Dollar sales for company to break=562,500

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

Dollar sales for North segment to break-even= Dollar sales for North segment to break-even=78,000/30%

Dollar sales for North segment to break-even=260,000

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

Dollar sales for South segment to break-even Dollar sales for South segment to break-even=78,000/60%

Dollar sales for South segment to break-even=130,000