Question

Required Information [The following information applies to the questions displayed below.) Diego Company manufactures one product that is sold for $77 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 59,000 units and sold 54,000 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 27 10 2 3 $ s $1,298,000 $ 662,000 The company sold 41,000 units in the East region and 13,000 units in the West region. It determined that $330,000 of its fixed selling and administrative expense is traceable to the West region, $280,000 is traceable to the East region, and the remaining $52,000 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. 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 $122,000 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 decrease by

Answer 1

First Year
	Per Unit	East	West	Commom	East	West	Commom	Total
		Unit	Unit		Amt	Amt		Amt
Sales	77	41000	13000		3157000	1001000		4158000
Manufacturing Cost
Direct Material	27	41000	13000	5000	1107000	351000	135000	1593000
Direct Labour	10	41000	13000	5000	410000	130000	50000	590000
Variable Manu Overhead	2	41000	13000	5000	82000	26000	10000	118000
Variable Selling And Admn	3	41000	13000	5000	123000	39000	15000	177000
Fixed costs per year
Fixed Manu Overhead							1298000	1298000
Fixed Selling And Admn Exps					280000	330000	52000	662000
Total Cost					2002000	876000	1560000	4438000
Profit					1155000	125000	-1560000	-280000
Second Year
	Per Unit	East	West	Commom	East	West	Commom	Total
		Unit	Unit		Amt	Amt		Amt
Sales	77	43050	13000		3314850			3314850
Manufacturing Cost
Direct Material	27	43050		15950	1162350	0	430650	1593000
Direct Labour	10	43050		15950	430500	0	159500	590000
Variable Manu Overhead	2	43050		15950	86100	0	31900	118000
Variable Selling And Admn	3	43050		15950	129150	0	47850	177000
Fixed costs per year
Fixed Manu Overhead							1298000	1298000
Fixed Selling And Admn Exps					280000		382000	662000
Total Cost					2088100	0	2349900	4438000
Profit					1226750	0	-2349900	-1123150