Diego Company manufactures one product that is sold for $80 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 40,000 units and sold 35,000 units Variable costs per unit Manufacturing Direct materials $ 24 Direct labor $ 14 Variable manufacturing overhead $ 2 Variable selling and administrative $ 4 Fixed costs per year Fixed manufacturing overhead $ 800,000 Fixed selling and administrative expenses $ 496,000 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 expenses is traceable to the West region, $150,000 is traceable to the East region, and the remaining $96,000 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 7 What is the amount of the difference between the variable costing and absorption costing net operating incomes (losses) 9 If the sales volumes in the East and West regions had been reversed, what would be the companys overall break even point in unit sales 10 What would have been the companys variable costing net operating income (loss) if it had produced and sold 35,000 units 11 What would have been the companys absorption costing net operating income (loss) if it had produced and sold 35,000 units 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 regions 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 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 15 Assume the West region invests $30,000 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

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 15, 2024

Diego Company manufactures one product that is sold for $80 per unit in two geographic regionsthe East and West regions. The following information pertains to

Diego Company manufactures one product that is sold for $80 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 40,000 units and sold 35,000 units


Variable costs per unit:
Manufacturing:
Direct materials	$	24
Direct labor	$	14
Variable manufacturing overhead	$	2
Variable selling and administrative	$	4
Fixed costs per year:
Fixed manufacturing overhead	$	800,000
Fixed selling and administrative expenses	$	496,000

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 expenses is traceable to the West region, $150,000 is traceable to the East region, and the remaining $96,000 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.

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

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

10.	What would have been the companys variable costing net operating income (loss) if it had produced and sold 35,000 units?

11.	What would have been the companys absorption costing net operating income (loss) if it had produced and sold 35,000 units?

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 regions 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 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?

15.	Assume the West region invests $30,000 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?