Diego Company manufactures one product that is sold for $$70$ per unit in two geographic regions$$East and West. The following information pertains to the company$$s first year of operations in which it produced $41,000$ units and sold $36,000$ units.

Variable costs per unit:

Manufacturing:

Direct materials $ $20$

Direct labor $ $10$

Variable manufacturing overhead $ $2$

Variable selling and administrative $ $4$

Fixed costs per year:

Fixed manufacturing overhead $ $984,000$

Fixed selling and administrative expense $ $308,000$

The company sold $26,000$ units in the East region and $10,000$ units in the West region. It determined that $$150,000$ of its fixed selling and administrative expense is traceable to the West region, $$100,000$ is traceable to the East region, and the remaining $$58,000$ 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.

$1.$ What is the unit product cost under variable costing?

$2.$ What is the unit product cost under absorption costing?

$3.$ What is the company$$s total contribution margin under variable costing?

$4.$ What is the company$$s net operating income $($loss$)$ under variable costing?

$5.$ What is the company$$s total gross margin under absorption costing?

$6.$ What is the company$$s net operating income $($loss$)$ under absorption costing?

$7.$ What is the difference between the variable costing and absorption costing net operating incomes $($losses$)?$

$-$ Variable costing net operating income $($loss$)$ Blank

Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing

or

Add: Fixed manufacturing overhead cost released from inventory under absorption costing

Or

Deduct: Fixed manufacturing overhead cost deferred in inventory under absorption costing

Or

Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing

With answer

Absorption costing net operating income $($loss$)$

$8.$ A$.$ What is the company$$s break$-$even point in unit sales?

a$.$ b$.$ Is it above or below the actual unit sales?

multiple choice

$$ Above

$$ Below

$9.$ If the sales volumes in the East and West regions had been reversed, what would be the company$$s overall break$-$even point in unit sales?

$10.$ What would have been the company$$s variable costing net operating income $($loss$)$ if it had produced and sold $36,000$ units?

$11.$ What would have been the company$$s absorption costing net operating income $($loss$)$ if it had produced and sold $36,000$ units?

$12.$ If the company produces $5,000$ fewer units than it sells in its second year of operations, will absorption costing net operating income be higher or lower than variable costing net operating income in Year $2?$

$13.$ Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions.

$14.$ Diego is considering eliminating the West region because an internally generated report suggests the region$$s total gross margin in the first year of operations was $$10,000$ less than its traceable fixed selling and administrative expenses. Diego believes that if it drops the West region, the East region's sales will grow by $6\%$ 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 $2?$

$15.$ Assume the West region invests $$31,000$ in a new advertising campaign in Year $2$ that increases its unit sales by $20\%.$ If all else remains constant, what would be the profit impact of pursuing the advertising campaign? Prepare a contribution format segmented Income statement that Includes a Total column and columns for the East and West

regions.