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 Variable manufacturing overhead 12 Variable selling and administrative Fixed costs per year: 864,000 Fixed manufacturing overhead Fixed selling and administrative expense586,000 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

Explanation / Answer

Answer: 14 Calculation of unit product cost:

Unit Product cost=Direct material+Direct labor+Variable manufacturing overhead

=22+12+3

=37

Contribution margin per unit=Selling price per unit-Unit product cost

=71-37

=34

Calculation of contribution in West region:

Contribution=contribution margin per unit* Sales unit

=34*13000

=$442000

Foregone segment margin=Contribution margin-Traceable fixed selling and administrative exp

=442000-280000

=162000

Additional contribution margin in East region

=Contribution * 5% increase

=(36000*34)*5%

=61200

Profit will decrease by 100800.

Calculation of Forgone segment margin in the west region

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