t. Chapter 7 Assignment 4 Variable costs per unit Manufacturing: Direct naterial
ID: 2337947 • Letter: T
Question
t. Chapter 7 Assignment 4 Variable costs per unit Manufacturing: Direct naterials Diract labor Variable nanufacturing overhead 21 1e Variable selling and adninistrative $ Fixed costs per year Fixed ranufacturing overhead Fixed selling and adsinistrative 557,ee0 1,86e,ee8 The compay sokd 36,000 units in the East region and 12.000 units in the West region. It determined thet 5220,000 of its fixed seling and acministrative expense is traceable to the West region, $220,000 Is traceable to the East region and the remaning S67.000 is acommon fixed expense. The company wil continue to incur the total anhount of its fixed manufacturng overhead costs as long as it continues so produce any amount of its only product Diego is considesing eiminating the West region because an intemally generated eport suggests the region's total gross margin in 14. the frst year of operations was $66,000 less than ts traceable fixed selling and admiustrolive expenses. Diego beleves that if t dro the west region, the Ea l egion's sales wil: row by 5% in Yea 2 using ihe conta ton approach for analyrng segr ent protnabilty and sosuming alil cise remsins constank in Year 2 what would be the profit impact of dropping the West region in Year 2?Explanation / Answer
1.segment margin of west region =contribution margin -traceable fixed selling and administrative expenses
={($70-$21-$10-2-4)×12000 units}-$270,000
=$126,000
Contribution margin of east region=(70-21-10-2-4)×36000 units
=$1,188,000
Increased contribution margin in east region=1188,000×5%
=$59,400
Profit impact of dropping west region:
Forgone segment margin in the West region=($126,000)
Additional contribution margin in east region=$59,400
Decrease in profits if west region is dropped=(66,600)
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