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question using the scenario provided your textbook and at least one outside source d 4289355

Question

Using the scenario provided, your textbook, and at least one outside source discuss whether you agree with the intern’s decision to use an absorption format for her segmented income statement and her decision to allocate the common fixed expenses to the Commercial and Residential segments? Why or why not? Write in complete sentences and included proper APA citations for each of your sources used in your post.

Discussion

Toxaway Company is a merchandiser that segments its business into two divisions—Commercial and Residential. The company’s accounting intern was asked to prepare segmented income statements that the company’s divisional managers could use to calculate their break-even points and make decisions. She took the prior month’s companywide income statement and prepared the absorption format segmented income statement shown below:

Total

Company

Commercial

Residential

Sales

$750,000

$250,000

$500,000

Cost of goods sold

500,000

   140,000

360,000

Gross margin

250,000

110,000

140,000

Selling and administrative expenses

240,000

   104,000

   136,000

Net operating income

$   10,000

$    6,000

$    4,000

In preparing these statements, the intern determined that Toxaway’s only variable selling and administrative expense is a 10% sales commission on all sales. The company’s total fixed expenses include $72,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $55,000 of fixed expenses that would be avoided if the Commercial segment is dropped, and $38,000 of fixed expenses that would be avoided if the Residential segment is dropped.

Discussion

Toxaway Company is a merchandiser that segments its business into two divisions—Commercial and Residential. The company’s accounting intern was asked to prepare segmented income statements that the company’s divisional managers could use to calculate their break-even points and make decisions. She took the prior month’s companywide income statement and prepared the absorption format segmented income statement shown below:

Total

Company

Commercial

Residential

Sales

$750,000

$250,000

$500,000

Cost of goods sold

500,000

   140,000

360,000

Gross margin

250,000

110,000

140,000

Selling and administrative expenses

240,000

   104,000

   136,000

Net operating income

$   10,000

$    6,000

$    4,000

In preparing these statements, the intern determined that Toxaway’s only variable selling and administrative expense is a 10% sales commission on all sales. The company’s total fixed expenses include $72,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $55,000 of fixed expenses that would be avoided if the Commercial segment is dropped, and $38,000 of fixed expenses that would be avoided if the Residential segment is dropped.

 

Total

Company

Commercial

Residential

Sales

$750,000

$250,000

$500,000

Cost of goods sold

500,000

   140,000

360,000

Gross margin

250,000

110,000

140,000

Selling and administrative expenses

240,000

   104,000

   136,000

Net operating income

$   10,000

$    6,000

$    4,000

 

 

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