Diego Company manufactures one product that is sold for $78 per unit in two geographic regionsthe East and West regions. The following information pertains to the companys first year of operations in which it produced 49,000 units and sold 44,000 units.

Variable costs per unit:Manufacturing:Direct materials$28Direct labor$14Variable manufacturing overhead$4Variable selling and administrative$6Fixed costs per year:Fixed manufacturing overhead$686,000Fixed selling and administrative expenses$510,000

The company sold 32,000 units in the East region and 12,000 units in the West region. It determined that $230,000 of its fixed selling and administrative expenses is traceable to the West region, $180,000 is traceable to the East region, and the remaining $100,000 is a common fixed cost. 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 eliminating the West region because an internally generated report suggests the regions total gross margin in the first year of operations was $14,000 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 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?

How much will the profit increase/decrease by?

Assume the West region invests $39,000 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?

How much will the profit increase/decrease by?