Question

Diego Company manufactures one product that is sold for $70 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 53,000 units and sold 48,000 units.
Variable costs per unit:
Manufacturing:
Direct materials $ 21
Direct labor $ 10
Variable manufacturing overhead $ 2
Variable selling and administrative $ 4
Fixed costs per year:
Fixed manufacturing overhead $ 1,060,000
Fixed selling and administrative expense $ 557,000


The company sold 36,000 units in the East region and 12,000 units in the West region. It determined that $270,000 of its fixed selling and administrative expense is traceable to the West region, $220,000 is traceable to the East region, and the remaining $67,000 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 $43,000 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?

Answer 1

The 53,000 units produced and the increase in sales of 50,400 - 48,000 = 2,400 units, give an impact (increase) in profit of $168,000

How can the impact in profit be found?

Price per unit = $70

Number of units produced = 53,000

Number of units sold = 48,000

Material cost per unit = $21

Labour cost per unit = $10

Manufacturing overhead = $2

Selling and administrative overhead = $4

Fixed cost = $1,060,000

Administrative expenses = $557,000

Advertising cost = $43,000

Percentage increase in sales = 20%

Number of units sold in Year 2 = 1.2 × 12,000 = 14,400

Total cost = 53000×(21+10+2+4) + 1,060,000 + 557,00 = 3,578,000

Total revenue in Year 1 = 70 × 48,000 = 3,360,000

• Profit = Revenue - Cost

Profit in Year 1 = 3,360,000 - 3,578,000 = -218,000

Total revenue in Year 2 = 70 × (36,000+14,400) = 3,528,000

Profit in Year 2 = 3,528,000 - 3,578,000 = -50,000

The impact on the profit is therefore;

-50,000 - (-218,000) = 168,000

• The profit impact is an increase in profit of $168,000

Learn more about revenue, profit, and costs here:

brainly.com/question/2115053

#SPJ1