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 $ 675,000 $ 450,000 $ 225,000 Variable expenses 405,000 315,000 90,000 Contribution margin 270,000 135,000 135,000 Traceable fixed expenses 150,000 75,000 75,000 Segment margin 120,000 $ 60,000 $ 60,000 Common fixed expenses 65,000 Net operating income $ 55,000 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.

Piedmont Company

1. Computation of the Companywide break-even point:

Break-even point = Fixed Cost/Contribution per margin

= $215,000/$27 = 7,963 units

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

Break-even point in dollar sales = Fixed Costs/Contribution margin percentage

= $107,500/30% = $358,333

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

= $107,500/60% = $179,1667

Explanation:

a) Data

Piedmont Company Contribution format segmented income statement as shown:

                                      Total Company            North             South

Sales                                 $ 675,000              $ 450,000     $ 225,000

Variable expenses              405,000                  315,000           90,000

Contribution margin           270,000                  135,000          135,000

Traceable fixed expenses  150,000                   75,000            75,000

Segment margin                 120,000               $ 60,000         $ 60,000

Common fixed expenses    65,000                  32,500             32,500

Net operating income      $ 55,000                $27,500           $27,500

NB: The common fixed expenses must be shared in some way to calculate the break-even points.

b) Total fixed costs:

Company-wide = $215,000 ($150,000 + 65,000)

North = $107,500 ($75,000 + 32,500)

South = $107,500 ($75,000 + 32,500)

c) We assume that the sales unit of 5,000 each for the two regions.  Total units = 10,000

d) Contribution per margin:

Company-wide = $270,000/10,000 = $27

North = $135,000/5,000 = $27

South = $135,000/5,000 = $27

e) Contribution margin percentage:

= Contribution/Sales x 100

Company-wide = $270,000/$675,000 x 100 = 40%

North = $135,000/$450,000 x 100 = 30%

South = $135,000/$225,000 x 100 = 60%

f) The break-even point is the quantity of sales that must be achieved for the fixed costs to be fully covered and no profit or loss is recorded.  It is the point at which fixed costs are equal to the contribution.  The contribution is the difference between the sales value and the variable costs.

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