Toxaway Company is a merchandiser that segments its businessinto two divisions—Commercial and Residential. The company’saccounting intern was asked to prepare segmented income statementsthat the company’s divisional managers could use to calculate theirbreak-even points and make decisions. She took the prior month’scompanywide income statement and prepared the absorption formatsegmented income statement shown below:

	Total Company			Commercial			Residential
Sales	$	1,050,000		$	350,000		$	700,000
Cost of goods sold		682,500			178,500			504,000
Gross margin		367,500			171,500			196,000
Selling and administrative expenses		320,000			144,000			176,000
Net operating income	$	47,500		$	27,500		$	20,000

In preparing these statements, the intern determined thatToxaway’s only variable selling and administrative expense is a 10%sales commission on all sales. The company’s total fixed expensesinclude $57,000 of common fixed expenses that would continue to beincurred even if the Commercial or Residential segments arediscontinued, $90,000 of fixed expenses that would be avoided ifthe Commericial segment is dropped, and $68,000 of fixed expensesthat would be avoided if the Residential segment is dropped.

Required:

1. Redo the intern’s segmented income statement using thecontribution format.

2. Compute the companywide break-even point in dollar sales.

3. Compute the break-even point in dollar sales for theCommercial Division and for the Residential Division.

4. Assume the company decided to pay its sales representativesin the Commercial and Residential Divisions a total monthly salaryof $17,500 and $35,000, respectively, and to lower its companywidesales commission percentage from 10% to 5%. Calculate the newbreak-even point in dollar sales for the Commercial Division andthe Residential Division.