The Diego Company manufactures and sells one product which it sells for $76 per unit in two 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: Direct material........... ............22 Direct labor............... 12 Variable overhead..... .2 Variable selling expense.............. 5 Fixed costs per year: Fixed manufacturing overhead. $800.000 Fixed selling and administration expense.....$496,000 14. Diego is considering eliminating the West region because an internally generated report sug. gests 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? 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? 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? Why? No calculations are necessary. 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 sug- gests 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? 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 Diego Company manufactures and sells one product which it sells for $76 per unit in two 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: Direct material. 22 Direct labor. 12 Variable overhead. 2 Variable selling expense 5 Fixed costs per year: Fixed manufacturing overhead.. $300.000 Fixed selling and administration expenses. $495.000
