Diego Company manufactures one product that is sold for $81 per unit in two geographic regions--the East and

West regions. The following information pertains to the company's first year of operations in which it produced

52,000 units and sold 47,000 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

$ 20

20

$ 4

$6

$ 936,000

$ 552,000

The company sold 35,000 units in the East region and 12,000 units in the West region. It determined that $260,000

of its fixed selling and administrative expense is traceable to the West region, $210,000 is traceable to the East

region, and the remaining $82,000 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.

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 hiaher or lower than variable costina net operatina income in Year 2? O Higher

O Lower

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

regions.East west total

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 $32,000 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 $42,000 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?

Profit will be?