Question

Required information The Foundational 15 (LO6-1, LO6-2, LO6-3, LO6-4, LO6-5) [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 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 24 14 2 4 $ $ 800,000 $ 496,000 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 fixed 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 6-9 9. If the sales volumes in the East and West regions had been reversed, what would be the company's overall break-even point in unit sales? Break even point units

Answer 1

As, here both the regions selling the product at the same rate. So, both of the regions have same Contribution margin per unit. Calculation of contribution margin per unit Per unit $ 80.00 Selling price per unit A B C Variable costs : Direct material Direct labor Variable manufacturing overhead Variable selling and administrative Total Variable cost per unit $ 24.00 $ 14.00 $ 2.00 $ 4.00 D F=B+C+D+E $ 44.00 Contribution margin per unit G=A-F $36.00 Calculation of Traceable fixed selling and administrative expense = East region Traceable fixed selling and administrative expense + West region Traceable fixed selling and administrative expense = $ 250,000 +$ 150,000 = $ 400,000 Calculation of Company's overall break-even point in unit sales Overall break-even point in units - Traceable fixed selling and administrative expenses + Contribution margin per unit Overall break-even point in units = $ 400,000 = $36.00 per unit Overall break-even point in units = 11,111.11 (or) 11,112 units