Foundational [LO6-1, LO6-2, LO6-3, LO6-4] IThe following information applies to

Question

Foundational [LO6-1, LO6-2, LO6-3, LO6-4] IThe following information applies to the questions displayed below.] 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 49,000 units and sold 44,000 units. Variable costs per unit: Manufacturing Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative 28 14 4 6 Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $ 686,000 $ 510,000 The company sold 32,000 units in the East region and 12,000 units in the West region. It determined that $230,000 of its fixed selling and administrative expenses is traceable to the West region, $180,000 is traceable to the East region, and the remaining $100,000 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.

Explanation / Answer

1. Absorption costing net operating income/ (loss):

2. If the company produces 5,000 less than it sells, absorption costing net operating income will be lower than variable costing net operating income.

3. Segmented Contribution Margin Income Statement:

$ $ Sales ( 44,000 @ $ 78) 3,432,000 Cost of goods sold Variable manufacturing cost @ 46 2,024,000 Fixed manufacturing cost @ 616,000 2,640,000 Gross margin 792,000 Less nonmanufacturing costs: Variable selling and administrative costs @ $6 264,000 Fixed selling and administrative expenses 510,000 774,000 Net operating income 18,000

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