Question

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. 20 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 $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. Foundational 6-14 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 $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? Profit will by 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 by 13. Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions. Income Statement Total Company East West 0 $ 0 $ S0

Please solve #13 & 14!

Please indicate the actual answer for 14~! Thnx!!!

Answer 1

Solution of the above problem is as under:

Diego Company
Income Statement
Particulars	East Region Year-2
Sales Revenue (A)	2976750
Less: Variable Cost
Direct Materials	735000
Direct Labour	735000
Manufacturing Overhead	147000
Selling and Administrative Overhead	220500
Total Variable Cost (B)	1837500
Contribution Margin (A-B) {C}	1139250
Less: Fixed Expenses
Manufacturing Overhead	936000
Selling and Administrative Overhead	342000
Total Fixed Expenses (D)	1278000
Net Income (C-D)	-138750

Hence, Profit will increase by $ 54250 in Year-2 by dropping the West Region. Or Loss will decrease by $54250

Diego Company
Income Statement
Particulars	West Region Year-2
Sales Revenue (A)	1166400
Less: Variable Cost
Direct Materials	240000
Direct Labour	240000
Manufacturing Overhead	48000
Selling and Administrative Overhead	72000
Total Variable Cost (B)	600000
Contribution Margin (A-B) {C}	566400
Less: Fixed Expenses
Manufacturing Overhead	936000
Selling and Administrative Overhead	384000
Total Fixed Expenses (D)	1320000
Net Income (C-D)	-753600

By investing $42000 in a new advertising campaign in Year-2, the loss will decrease by $ 102400

Diego Company
Income Statement
Particulars	Total Company	East Region	West Region
Sales Revenue (A)	3807000	2835000	972000
Less: Variable Cost
Direct Materials	940000	700000	240000
Direct Labour	940000	700000	240000
Manufacturing Overhead	188000	140000	48000
Selling and Administrative Overhead	282000	210000	72000
Total Variable Cost (B)	2350000	1750000	600000
Contribution Margin (A-B) {C}	1457000	1085000	372000
Less: Fixed Expenses
Manufacturing Overhead	936000	936000	936000
Selling and Administrative Overhead	552000	342000	292000
Total Fixed Expenses (D)	1488000	1278000	1228000
Net Income (C-D)	-31000	-193000	-856000