mework Set Help Save & ExitSu Check my wo Required information The following inf
ID: 2548765 • Letter: M
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mework Set Help Save & ExitSu Check my wo Required information The following information applies to the questions displayed below. Diego Company manufactures one product that is sold for $73 per unit in two geographic regions-the East and West and sold 51,000 units. regions. The following information pertains to the company's frst year of operations in which it produced 56,000 units Variable costs per unit: Manufacturing: Direct materials 24 16 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year s 784,000 Fixed manufacturing overhead Pixed selling and administrative expense 672,000 The company sold 38,000 units in the East region and 13,000 units in the West region. It determined that $300,000 of its fixed selling and administrative expense is traceable td the West region, $250,000 is traceable to the East region, and the remaining $122,000 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. 14. Diego is considering eliminating the West region because the first year of operations was $79,000 less than its traceable fixed selling and administrative expenses. Diego believes that if it drops the west region, the East region's sales will grow by 5% in Year 2, Using the contribution approach for analyzing segment profitabil and assuming all else remains constant in Year 2, what would be the profit impact of dropping the West region in Year 2? an internally generated report suggests the region's total gross margin inExplanation / Answer
It can be seen from the above , that closingWest division will result in higher net operaing loss by $10,800.
This is because even though East division is generating aditional income of $53,200 with increased sales , this is less than the divisional net income of West division of $64,000. The shortfall of $10,800 ($64,000 - $53,200) is reflected in the lower net operating income for the company.
Working:
2. The advertising campaign by west division , will result in the net income to increase by $166,800. The net operating income will go up to $138,800 form the present level of -$28,000.
Working:
With West Division Without West Division Sales 3723000 2912700 Variable expenses: Direct material 1224000 957600 Direct labor 816000 638400 Manufacturing overheads 102000 79800 Selling and admn.expenses 153000 119700 Total Variable expenses 2295000 1795500 Contribution margin 1428000 1117200 Traceable fixed expenses 550000 250000 Divisional operating income 878000 867200 Non-traceable fixed expenses 0 0 Manufacturing overheads 784000 784000 Selling and admn. Expenses 122000 122000 Total non-traceable fixed expenses 906000 906000 Net operating income -28000 -38800Related Questions
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