Diego Company manufactures one product that is sold for $71 per unit in two geog

Question

Diego Company manufactures one product that is sold for $71 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 54,000 units and sold 49,000 units. Variable costs per unit: Manufacturing: Direct materials Direct labor 12 Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense $ 864,000 586,000 The company sold 36,000 units in the East region and 13,000 units in the West region. It determined that $280,000 of its fixed selling and administrative expense is traceable to the West region, $230,000 is traceable to the East region, and the remaining $76,000 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. Foundational 6-15 15. Assume the West region invests $44,000 in a new advertising campaign in Year 2 that increases its unit sales by 20%, if all else remains constant, what would be the profit impact of pursuing the advertising campaign? Profit will by

Explanation / Answer

A Sales price per unit $71 Variable cost per unit: B Direct materials $22 C Direct Labor $12 D Variable manufacturing overhead $3 E Variable Selling and administrative $5 F=A+B+C+D Total variable expenses $42 G=A-F Contribution per unit $29 East West Total Region Region I Units sold            36,000            13,000            49,000 J Increase in units sold in year 2 0              2,600              2,600 K=J*29 Increase in contribution in year2 0 $        75,400 $        75,400 L Increase in fixed expenses in year2 0 $44,000 $44,000 (New advertising campaign) M=K-L Increase in profit in year2 0 $        31,400 $        31,400 PROFIT WILL INCREASE BY $        31,400

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