The Foundational $15($Algo$)[$LO$6-1,$ LO$6-2,$ LO$6-3,$ LO$6-4,$ LO$6-5]$

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Diego Company manufactures one product that is sold for $$75$ per unit in two geographic regions$$East and West. The following information pertains to the company$$s first year of operations in which it produced $46,000$ units and sold $42,000$ units.

Variable costs per unit:

Manufacturing:

Direct materials $ $25$

Direct labor $ $20$

Variable manufacturing overhead $ $2$

Variable selling and administrative $ $4$

Fixed costs per year:

Fixed manufacturing overhead $ $644,000$

Fixed selling and administrative expense $ $388,000$

The company sold $31,000$ units in the East region and $11,000$ units in the West region. It determined $$200,000$ of its fixed selling and administrative expense is traceable to the West region, $$150,000$ is traceable to the East region, and the remaining $$38,000$ 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.

Foundational $6-14($Algo$)$

$14.$ Diego is considering eliminating the West region because an internally generated report suggests the region$$s total gross margin in the first year of operations was $$46,000$ 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 $2?$