Question

14 Required information Pert 14 of 15 The following information applies to the questions displayed below] Diego Company manufactures one product that is sold for $74 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 45,000 units and sold 40,000 units. points Variable costs per unit: Manufacturing: Direct naterials 24 eBook Direct labor Variable manufacturing overhead Variable aelling and adminiatrative Fixed costs per year: Fixed manufacturir Fixed selling and adninistrative expenae 18 3 5 Pint rh $ 585, 000 423,000 Roforences The company sold 30,000 units in the Sast region and 10,000 units in the West region. It determined that $190,000 of its fixed selling and administrative expense is traceable to the West region, $140,000 is traceable to the East region, and the remaining $93,000 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 $30,000 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? decrease Profit will by 15 Required information [The following information applies to the questions displayed below Part 15 of 15 Diego Company manufactures one product that is sold for $74 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 45,000 units and sold 40,000 units. 5 points Variable costa per unit: Manufacturing: Direct materials Direct labor eBook 24 18 Variable manufacturing overhead Variable selling and adniniatrative 3 5 Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense Print 585,000 423,000 References The company sold 30,000 units in the East region and 10,000 units in the West region. It determined that $190,000 of its fixed selling and administrative expense is traceable to the West region, $140,000 is traceable to the East region, and the remaining $93,000 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 15. Assume the West region invests $35,000 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 increase by

Answer 1

14. Additional Contribution margin from East Region = Sales Units * (SAle Price - Variable Cost) * 5%

Additional Contribution margin from East Region = 30000 * (74 - 50) * 5%

Additional Contribution margin from East Region = $36000

Loss of West Region income if dropped = 10000 * (74 - 50) - 190000

Loss of West Region income if dropped = 240000 - 190000

Loss of West Region income if dropped = 50000

Answer Profit will decrease by $14000

15. Advertising Campaign

Additional Contribution margin from West Region = Sales Units * (SAle Price - Variable Cost) * 20%

Additional Contribution margin from West Region = 10000 * (74 - 50) * 20%

Additional Contribution margin from West Region = 48000

Advertising Cost = 35000

Answer Profit will increase by $13000