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Diego Company manufactures one product that is sold for $78 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 60,000 units and sold 57,000 units. Varlable costs per unt Direct materials Direct labor Varlable manufacturing overhead Varlable selling and administretive 28 12 Fbied costs per year Fixed manufacturing overhead Fixed selling and administrative expenses $ 1,260,000 S 654,000 The company sold 42,000 units in the East region and 15,000 units in the West region. It determined that $340,000 of its fixed selling and administrative expenses is traceable to the West region, $290,000 is traceable to the East region, and the remaining $24,000 is a common fixed cost. 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. What is the company's net operating income (loss) under absorption costing? What is the amount of the difference between the variable costing and absorption costing net operating incomes (losses)? Difference of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) uct: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing net operating income (loss) 14. Diego is considering eliminating the West region because an intemally generated report suggests the region's total gross margin in the first year of operations was $115,000 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? 15. Assume the west region invests $50,000 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?

Answer 1

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