If the sales volumes in the East and West regions had been reversed, what would
ID: 2418490 • Letter: I
Question
If the sales volumes in the East and West regions had been reversed, what would be the company’s overall break-even point in unit sales?
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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 53,000 units and sold 48,000 units.
The company sold 36,000 units in the East region and 12,000 units in the West region. It determined that $270,000 of its fixed selling and administrative expenses is traceable to the West region, $220,000 is traceable to the East region, and the remaining $67,000 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.
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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 53,000 units and sold 48,000 units.
Explanation / Answer
Sales Price 70 Variable costs per unit: Direct materials 21 Direct labor 10 Variable manufacturing overhead 2 Variable selling and administrative 4 37 Contribution 33 Fixed Cost Fixed manufacturing overhead 1060000 Fixed selling and administrative expenses 557000 1617000 Break Even Units Fixed Cost/Contribution =1617000/33 49000 the contribution margin per unit is the same regardless of whether a unit is sold in the East or West region.HenceThe breakeven point of 49,000 units would remain the same.
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