Diego Company manufactures one product that is sold for $70 pe r unit in two geo
ID: 2338319 • Letter: D
Question
Diego Company manufactures one product that is sold for $70 pe r 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 41000 units sold 36,000 units. Variable costs per unit: Manufacturing Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense 984,808 $ 388,8ee 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 fixed selling and administrative expense is traceable to the West region $100.000 is traceable to the East region, and the remaining $58.000 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 $31 in a new advertising campaign in Year 2 that increases ns unit sales by 20% if all else remains constant, what would be the profft impact of pursuing the advertising campaign? rofit willExplanation / Answer
Current position
Income statement
East region
West region
Total
Sales revenue
$ 1,820,000.00*
$ 700,000.00
$ 2,520,000.00
Less : variable cost @ $36 per unit
$ 936,000.00
$ 360,000.00**
$ 1,296,000.00
Contribution margin
$ 884,000.00
$ 340,000.00
$ 1,224,000.00
Less: Fixed costs
Fixed manufacturing Overheads
$ 984,000.00
Fixed selling and Administrative expense
$ 308,000.00
Total Fixed cost
$ 1,292,000.00
Net income
$ (68,000.00)
*26000x70
**10000 x 36
Variable cost
Per unit cost
Direct material
$ 20.00
Direct labor
$ 10.00
Variable manufacturing overheads
$ 2.00
Variable selling and administration
$ 4.00
Total Variable cost
$ 36.00
Position after increase in sales of West region
Income statement
East region
West region
Total
Sales revenue
$ 1,820,000.00
$ 840,000.00*
$ 2,660,000.00
Less : variable cost @ $36 per unit
$ 936,000.00
$ 432,000.00**
$ 1,368,000.00
Contribution margin
$ 884,000.00
$ 408,000.00
$ 1,292,000.00
Less: Fixed costs
Fixed manufacturing Overheads
$ 984,000.00
Fixed selling and Administrative expense
$ 339,000.00***
Total Fixed cost
$ 1,323,000.00
Net income
$ (31,000.00)
*12000 units x$70 per unit= $ 840000
**12000 units x $36 per unit= $ 432000
***$308000+31000= $339,000
Answer
Profit will Increase by $31000.
Current position
Income statement
East region
West region
Total
Sales revenue
$ 1,820,000.00*
$ 700,000.00
$ 2,520,000.00
Less : variable cost @ $36 per unit
$ 936,000.00
$ 360,000.00**
$ 1,296,000.00
Contribution margin
$ 884,000.00
$ 340,000.00
$ 1,224,000.00
Less: Fixed costs
Fixed manufacturing Overheads
$ 984,000.00
Fixed selling and Administrative expense
$ 308,000.00
Total Fixed cost
$ 1,292,000.00
Net income
$ (68,000.00)
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