Answer:
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
Explanation:
From the question, we are given the following:
Total Company North South
Sales $ 800,000 $ 600,000 $ 200,000
Variable expenses <u> 560,000 </u> <u> 480,000 </u> <u> 80,000 </u>
Contribution margin 240,000 120,000 120,000
Traceable fixed expenses <u> 126,000 </u> <u> 63,000 </u> <u> 63,000 </u>
Segment margin 114,000 <u> $ 57,000</u> <u> $ 57,000 </u>
Common fixed expenses <u> 54,000 </u>
Net operating income <u> $ 60,000 </u>
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
