SMC103Y1 Lecture Notes - Odoacer, Edward Gibbon, Diocletian
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Diego Company manufactures one product that is sold for $77 perunit in two geographic regionsâthe East and West regions. Thefollowing information pertains to the companyâs first year ofoperations in which it produced 48,000 units and sold 43,000units.
Variable costs per unit: | ||
Manufacturing: | ||
Directmaterials | $ | 27 |
Direct labor | $ | 12 |
Variablemanufacturing overhead | $ | 3 |
Variable sellingand administrative | $ | 5 |
Fixed costs per year: | ||
Fixed manufacturing overhead | $ | 864,000 |
Fixed selling and administrativeexpenses | $ | 456,000 |
The company sold 33,000 units in the East region and 10,000units in the West region. It determined that $220,000 of its fixedselling and administrative expenses is traceable to the Westregion, $170,000 is traceable to the East region, and the remaining$66,000 is a common fixed cost. The company will continue to incurthe total amount of its fixed manufacturing overhead costs as longas it continues to produce any amount of its only product. |
Required: |
Diego is considering eliminating the West region because aninternally generated report suggests the regionâs total grossmargin in the first year of operations was $50,000 less than itstraceable fixed selling and administrative expenses. Diego believesthat if it drops the West region, the East regionâs sales will growby 5% in Year 2. Using the contribution approach for analyzingsegment profitability and assuming all else remains constant inYear 2, what would be the profit impact of dropping the West regionin Year 2? |
Profit impact ifthe western region is dropped. (Input the amount aspositive value.) |
Profit will | (Click toselect)DecreaseIncrease | by | $ |