Diego Company manufactures one product that is sold for $75 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 46,000 units and sold 42,000 units. 2 W Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense Profit will # S The company sold 31,000 units in the East region and 11,000 units in the West region. It determined that $200,000 of its fixed selling and administrative expense is traceable to the West region, $150,000 is traceable to the East region, and the remaining $38,000 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. 15. Assume the West region invests $36,000 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? okay 3 E $ D 4 R & by LL 5 T * F G H U $ 644,000 $ 388,000 J $ 25 $ 20 $2 $4 you 8 1 K O 11 L P ?
Diego Company manufactures one product that is sold for $75 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 46,000 units and sold 42,000 units. 2 W Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense Profit will # S The company sold 31,000 units in the East region and 11,000 units in the West region. It determined that $200,000 of its fixed selling and administrative expense is traceable to the West region, $150,000 is traceable to the East region, and the remaining $38,000 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. 15. Assume the West region invests $36,000 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? okay 3 E $ D 4 R & by LL 5 T * F G H U $ 644,000 $ 388,000 J $ 25 $ 20 $2 $4 you 8 1 K O 11 L P ?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:**Diego Company Case Study: Analyzing Costs and Profit Impact**
Diego Company manufactures a single product sold for $75 per unit in two geographic regions: the East and West. The company’s first-year operations included producing 46,000 units and selling 42,000 units.
**Variable Costs per Unit:**
- **Manufacturing:**
- Direct materials: $25
- Direct labor: $20
- Variable manufacturing overhead: $2
- **Variable selling and administrative:** $4
**Fixed Costs per Year:**
- Fixed manufacturing overhead: $644,000
- Fixed selling and administrative expense: $388,000
The company sold 31,000 units in the East region and 11,000 units in the West. It allocated $200,000 of the fixed selling and administrative expense to the West, $150,000 to the East, and $38,000 as a common fixed expense. The fixed manufacturing overhead costs will remain as long as the production of the product continues.
**Scenario Analysis:**
- **West Region Investment Impact:**
- Assume the West region invests $36,000 in a new advertising campaign, increasing unit sales by 20%.
- **Question:** If all else remains constant, what would be the profit impact of this advertising campaign?
This analysis serves as an example of cost allocation and the decision-making process related to advertising investments.
Expert Solution
Step 1
Increase in contribution= $52,800
Less:-
advertisement cost =($36,000)
profit Impact =$16,800
Note:-
contribution per unit = selling price- variable cost
=$75-($25+ $20 +$2+$4) =$24
● net increase in sales quantity =11000×20% =2200
●
Increase in contribution= 2200×$24 =$52,800
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