Chapter 7, Problem 14F15

Diego Company manufactures one product that is sold for $80 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 40:000 units and sold 35,000 units

The company sold 25,000 units in the East region and 10,000 units in the Vest region. It determined that $250,000 of its fixed selling and administrative expense is traceable to the Vest region, $150,000 is traceable to the East region; and the remaining $96,000 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.
Required:
Answer each question independently based on the original data unless instructed otherwise. You do not need to prepare a segmented income statement until question 13.
14. Diego is considering eliminating the West region because an internally generated report suggests the region’s total gross margin in the first year of operations was $50,000 less than its traceable fixed selling and administrative expenses. Diego believes that ¡fit drops the Vest region, the East region’s sales will grow by 5% in Year I Using the contribution approach for analyzing segment profitability and assuming all else remains constant in Year , what would be the profit impact of dropping the Vest region in Year ?