Required information

Skip to question

$[$The following information applies to the questions displayed below.$]$

Diego Company manufactures one product that is sold for $$80$ per unit in two geographic regions$$the East and West regions. The following information pertains to the company$$s first year of operations in which it produced $40,000$ 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 expense $ $496,000$

The company sold $25,000$ units in the East region and $10,000$ units in the West region. It determined that $$250,000$ of its fixed selling and administrative expense is traceable to the West region, $$150,000$ is traceable to the East region, 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.

Required:

$1.$ 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 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 under absorption costing?

$7.$ What is the amount of the difference between the variable costing and absorption costing net operating incomes $($losses$)?($Enter any losses or deductions as a negative value.$)$

Difference of Variable Costing and Absorption Costing Net Operating Income $($Losses$)$

Variable costing net operating income $($loss$)$ :

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

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

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

$9.$ 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 loss if it had produced and sold $35,000$ units? You do not need to perform any calculations to answer this question.

$11.$ What would have been the company$$s absorption costing net operating loss if it had produced and sold $35,000$ units? You do not need to perform any calculations to answer this question.

$13.$ 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$$s total gross margin in the first year of operations was $$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 $2?$ Profit will decrease by:

$15.$ 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? Profit will increase by: