[The following
information applies to the questions displayed below.]

Diego Company manufactures one product that is sold for
$76 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 58,000 units and sold 54,000 units.

Variable costs per
unit:

Manufacturing:

Direct
materials

$

23

Direct
labor

$

15

Variable
manufacturing overhead

$

3

Variable
selling and administrative

$

3

Fixed costs per year:

Fixed
manufacturing overhead

$

1,160,000

Fixed
selling and administrative expenses

$

640,000


The company sold 40,000 units in the East region and
14,000 units in the West region. It determined that $320,000 of its fixed
selling and administrative expenses is traceable to the West region, $270,000
is traceable to the East region, and the remaining $50,000 is a common fixed
cost. 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:

1.

What is the unit product cost
under variable costing?

2.

What is the unit product cost
under absorption costing?

3.

What is the company’s total
contribution margin under variable costing?

4.

What is the company’s net
operating income (loss) under variable costing?

5.

What is the company’s total gross
margin under absorption costing?

6.

What is the company’s net
operating income (loss) under absorption costing?

7.

What is the amount of the
difference between the variable costing and absorption costing net operating
incomes (losses)?

8.

1.

What is the company’s break-even
point in unit sales?

2.

Is it above or below the actual
sales volume?

9.

If the sales volumes in the East
and West regions had been reversed, what would be the company’s overall
break-even point in unit sales?

10.

What would have been the company’s
variable costing net operating income (loss) if it had produced and sold
54,000 units?

11.

What would have been the company’s
absorption costing net operating income (loss) if it had produced and
sold 54,000 units?

12.

If the company produces 4,000 fewer units than it sells in
its second year of operations, will absorption costing net operating income
be higher or lower than variable costing net operating income in Year 2?

13.

Prepare a contribution format
segmented income statement that includes a Total column and columns for the
East and West regions.

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 $110,000 less than its traceable fixed
selling and administrative expenses. Diego believes that if it drops the West
region, the East region’s sales will grow by 4% in Year 2. Using the
contribution approach for analyzing segment profitability and assuming all
else remains constant in Year 2, what would be the profit impact of dropping
the West region in Year 2?

15.

Assume the West region invests $48,000 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?