$4$

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Required information

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Diego Company manufactures one product that is sold for $$80$ per unit in two geographic regions $-$ the East and West reglons. The following information pertains to the company's first year of operations in which it produced $40,000$ units and sold $35,000$ units.

Variable costs per unit:

Manufacturing:

Direct materials

Direct labor

Variable manufacturing overhead

Variable selling and administrative

Fixed costs per year:

Fixed manufacturing overhead

Fixed selling and administrative expense

$$24$

$$14$

$$2$

$$4$

$$860,080$

$$496,600$

The company sold $25,000$ units In the East region and $10,000$ units in the West region. It determined that $$250,000$ of its fixed selling and administrative expense is traceable to the West region, $$150,000$ is traceable to the East reglon, and the remaining $$96,000$ is a common fixed expense. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product

Diego is considering ellminating the West reglon because an Internally generated report suggests the reglon's total gross margin in the first year of operations was $$50,000$ less than its traceable fixed selling and administrative expenses. Diego believes that if it drops the West reglon, the East reglon's sales will grow by $5\%$ in Year $2$ Using the contribution approach for analyzing segment profitability and assuming all else remains constant in Year $2,$ what would be the profit Impact of dropping the West region in Year $2?$

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