Diego Company manufactures one product that is sold for $79 perunit in two geographic regionsâthe East and West regions. Thefollowing information pertains to the companyâs first year ofoperations in which it produced 50,000 units and sold 45,000units.
Variablecosts per unit: Manufacturing: Directmaterials $ 29 Direct labor $ 16 Variablemanufacturing overhead $ 2 Variable sellingand administrative $ 4 Fixed costs peryear: Fixed manufacturing overhead $ 800,000 Fixed selling and administrativeexpenses $ 516,000
The company sold 35,000 units in the East region and 10,000units in the West region. It determined that $240,000 of its fixedselling and administrative expenses is traceable to the Westregion, $190,000 is traceable to the East region, and the remaining$86,000 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.
5. What is the companyâs total gross margin under absorptioncosting?
6. What is the companyâs net operating income (loss) underabsorption costing?
7. What is the amount of the difference between the variablecosting and absorption costing net operating incomes (losses)?
8. What is the companyâs break-even point in unit sales?
Diego Company manufactures one product that is sold for $79 perunit in two geographic regionsâthe East and West regions. Thefollowing information pertains to the companyâs first year ofoperations in which it produced 50,000 units and sold 45,000units. |
| Variablecosts per unit: | ||
| Manufacturing: | ||
| Directmaterials | $ | 29 |
| Direct labor | $ | 16 |
| Variablemanufacturing overhead | $ | 2 |
| Variable sellingand administrative | $ | 4 |
| Fixed costs peryear: | ||
| Fixed manufacturing overhead | $ | 800,000 |
| Fixed selling and administrativeexpenses | $ | 516,000 |
| The company sold 35,000 units in the East region and 10,000units in the West region. It determined that $240,000 of its fixedselling and administrative expenses is traceable to the Westregion, $190,000 is traceable to the East region, and the remaining$86,000 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. 5. What is the companyâs total gross margin under absorptioncosting? 6. What is the companyâs net operating income (loss) underabsorption costing? 7. What is the amount of the difference between the variablecosting and absorption costing net operating incomes (losses)? 8. What is the companyâs break-even point in unit sales? |
Related questions
If the sales volumes in the East and West regions had beenreversed, what would be the companyâs overall break-even point inunit sales?
The following information applies to the questions displayedbelow.]
Diego Company manufactures one product that is sold for $70 perunit in two geographic regionsâthe East and West regions. Thefollowing information pertains to the companyâs first year ofoperations in which it produced 53,000 units and sold 48,000units. |
| Variable costs per unit: | ||
| Manufacturing: | ||
| Directmaterials | $ | 21 |
| Direct labor | $ | 10 |
| Variablemanufacturing overhead | $ | 2 |
| Variable sellingand administrative | $ | 4 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 1,060,000 |
| Fixed selling and administrativeexpenses | $ | 557,000 |
| The company sold 36,000 units in the East region and 12,000units in the West region. It determined that $270,000 of its fixedselling and administrative expenses is traceable to the Westregion, $220,000 is traceable to the East region, and the remaining$67,000 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. question related to this summary is above |
[The following information applies to the questionsdisplayed below.]
Diego Company manufactures one product that is sold for $73 perunit in two geographic regionsâthe East and West regions. Thefollowing information pertains to the companyâs first year ofoperations in which it produced 56,000 units and sold 51,000units. |
| Variablecosts per unit: | ||
| Manufacturing: | ||
| Directmaterials | $ | 24 |
| Direct labor | $ | 16 |
| Variablemanufacturing overhead | $ | 2 |
| Variable sellingand administrative | $ | 3 |
| Fixed costs peryear: | ||
| Fixed manufacturing overhead | $ | 784,000 |
| Fixed selling and administrativeexpenses | $ | 672,000 |
| The company sold 38,000 units in the East region and 13,000units in the West region. It determined that $300,000 of its fixedselling and administrative expenses is traceable to the Westregion, $250,000 is traceable to the East region, and the remaining$122,000 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. 6.What is the companyâs net operating income (loss) underabsorption costing? 13.Prepare a contribution format segmented income statement thatincludes a Total column and columns for the East and Westregions. 15.Assume the West region invests $46,000 in a new advertisingcampaign in Year 2 that increases its unit sales by 20%. If allelse remains constant, what would be the profit impact of pursuingthe advertising campaign? |
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 | $ |
