Chapter 7, Problem 15F15

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.
15. Assume the Vest region invests $30,000 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 theadvertising campaign?