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 $ 600,000 $ 400,000 $ 200,000 Variable expenses 360,000 280,000 80,000 Contribution margin 240,000 120,000 120,000 Traceable fixed expenses 120,000 60,000 60,000 Segment margin 120,000 $ 60,000 $ 60,000 Common fixed expenses 50,000 Net operating income $ 70,000 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.

Answer 1

Answer:

BEP Company 425,000

BEP North        200,000

BEP South        100,000

Explanation:

The formula for bEP (break even point)

$\frac{Fixed\:Cost}{Contribution \:Margin \:Ratio} = Break\: Even\: Point_{dollars}$

Where:

$\frac{Contribution \: Margin}{Sales \: Revenue} = Contribution \: Margin \: Ratio$

We neeed to calculate the Contribution Margin Ratio before starting with the BEP

North CMR 120,000/400,000 = 0.3

South CMR 120,000/200,000 = 0.6

Company    240,000/600,000 = 0.4

Now we calculate the BEP in dollars

$\frac{Fixed\:Cost}{Contribution \:Margin \:Ratio} = Break\: Even\: Point_{dollars}$

North 60,000/0.3 = 200,000

South 60,000/0.6 = 100, 000

Company for the company we add segment fixed cost and the common fixed cost

segment fixed cost 120, 000

common fixed csot   50, 000

total fixed cost         170, 000

170,000/0.4 = 425,000