Question

please help me solve these problems.

Required information The following information applies to the questions displayed below.] Diego Company manufactures one product that is sold for $75 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 46,000 units and sold 42,000 units. 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 $ 644,000 $ 388,000 The company sold 31,000 units in the East region and 11,000 units in the West region. It determined that $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. 13. Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions.

Answer 1

Solution:
Income Statement
	Total Company	East	West		Remarks
Units	42000	31000	11000
Sales (A)	3150000	2325000	825000		at 75 each unit
Variable Expenses (B)	2142000	1581000	561000		25+20+2+4
Contribution Margin (A-B)	1008000	744000	264000
Traceable Fixed Cost as below
Fixed manufacturing	588000	434000	154000		Per unit cost would be 644000 divided by 46,000 which is 14
Fixed selling and admin (Traceable only)	350000	150000	200000		To be allocated to sold units
Region Segment Margin	70000	160000	-90000
Common fixed expenses not traceable to regions	38000	28048	9952		Per unit cost would be 38000 divided by 42,000 which is .9048
Net Operating Loss	32000	131952	-99952
Impact of dropping West Region
Profit as per income statement	32000
Add: Loss of West Region	99952
Profit of East	131952
Additional Sale of East region- 5% of 31000	1550
Contibution margion of east region per unit	(744000/31000) = 24
Additional Margin	37200	(1550 X 24)
Revised profit of East	169152	(131952 +37200)
Reduced by common fixed expenses of West	9952	(This will be borne by East now)
Revised profit of East after fixed expense	159200
Profit will increase by	127200	(159200 - 32000)
Impact of Advert
Original Profit as per income statement	32000
Additional Sale of Western	2200	(11000 X 20%)
Contribution margin of West	24
Additional profit	52800	(2200 X 24)
Additional cost	36000
Revised Profit	48800	(32000 + 52800 - 36000)
Increase in profit	16800	( 48800-32000)
Note: There is no change in overall fixed cost of the company and hence no impact. However allocation to East and West may change based on units sold