1 Required information The foNowing information appies to the questions displeye

Question

1 Required information The foNowing information appies to the questions displeyed below Diego Company manufactures one product that is sold for $70 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 41,000 units and sold 36,000 units. points Manufacturing varlable anufaeturiag overhead ixed costs per year Fixed nangfacturim, ovehead Fixed se11ng and 64m1nistrativo expense 984.00 308,000 The company sold 26,000 units in the East region and 10,000 units in the west region, it determined that $150,000 of its flixed seling and administrative expense is traceable to the West region, $100,000 is traceable to the East region, and the remaining $58000 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 $31,000 in a new advertising campaign in Year 2 that increases its unit sales by 20%. If al else remains constant, what would be the profit impact of pursuing the advertising campaign?

Explanation / Answer

With Advertising Existing Unit Price East West Total East West Total Unit Sold West 10000+20% 26000 12000 38000 26000 10000 36000 Sale Revenue 70 1820000 840000 2660000 1820000 700000 2520000 Direct Material 20 520000 240000 760000 520000 200000 720000 Direct Labor 10 260000 120000 380000 260000 100000 360000 Variable Manu Ovh 2 52000 24000 76000 52000 20000 72000 Variable Selling Ovh 4 104000 48000 152000 104000 40000 144000 Total Variable Cost 936000 432000 1368000 936000 360000 1296000 Contribution Margin 884000 408000 1292000 884000 340000 1224000 Traceable Fixed Selling Ovh Given in Que+31000 for west 100000 181000 281000 100000 150000 250000 Product Margin 784000 227000 1011000 784000 190000 974000 Fixed Manu Overh Given in Que 984000 984000 Fixed Selling Ovh 308000-250000 58000 58000 Net Income -31000 -68000 Loss will be reduced by (68000-31000)=37000

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