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This window shows your responses and what was marked correct and incorrect from yo Required information The Foundational 15 (L07-1, LO7-2, LO7-3, L07-4, LO7-5) [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 uniti Manufacturing Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative expert 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 Tixed 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. Foundational 7-14 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? ecrease by $26.250

Answer 1

Determination of poogit Pompact of dropping the west region in years through of Diego company Pontosbution Approach Calculation of contribution Per un during year 1 Particulars selling price per unit len variable cost per vnit: Manufacturing Direct malenials & 24 Diocet Labour $ 14 $2 Vanable manufacturing Ovohead Variable selling administrative VO SC ind $4 (gu) contribution per unit 36 It Implies that the contribution Impacts only Variable cost

of both East and went & calculation of proft regions 1st year Pantoulars Cou Lood yolai to hobution 3.60.000 9.00.000 ( 95000 36) Ons (19.000 x 36) ter Fixed costs por Year mrelevant relevant Ared manojatuning overhead' Fixed selling administram (1.50,000) (9,50.000) expenses ($ 96,000 Televant 1.16.000 Total 7.50.000 profit of both regions a $ 4,50,000 + $ 110,000 8,60.000 $36.000 teu common fixed o osts C8.96.000) 98,00,000+ $96.000 loss In the year 2 Diego decided to eliminace West region Then fixed ogėting & Alministration expenses Decreases by $50,000 which impacts the progt Increase by $50,000 - sales o fasi degion grows by 5*).

= 1250 unite Triplies 25,000 units to units x 5% o contribution for such vnit $ 1250 x 36 451 1000 Alt dedtited Fixed Therefore profit increases by eliminating Welt region V