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[The following information applies to the questionsdisplayed below.]

Diego Company manufactures one product that is sold for $75 perunit in two geographic regions—the East and West regions. Thefollowing information pertains to the company’s first year ofoperations in which it produced 57,000 units and sold 52,000units.

  

Variablecosts per unit:
Manufacturing:
Directmaterials	$	25
Direct labor	$	18
Variablemanufacturing overhead	$	3
Variable sellingand administrative	$	5
Fixed costs peryear:
Fixed manufacturing overhead	$	627,000
Fixed selling and administrativeexpenses	$	645,000

  

The company sold 36,000 units in the East region and 16,000units in the West region. It determined that $310,000 of its fixedselling and administrative expenses is traceable to the Westregion, $260,000 is traceable to the East region, and the remaining$75,000 is a common fixed cost. The company will continue to incurthe total amount of its fixed manufacturing overhead costs as longas it continues to produce any amount of its only product 12. If the company produces 5,000 fewer units than it selld inits second year of operations, will absorption costing netoperating income be higher or lower than variable costing netoperating income in year 2? 13. Prepeare a contribution foramt segmented income statementthat includes a total column and columns for the East and Weatregions. Total company East West . 14. Diego is considering eliminating the West region because aninternally generated report suggests the regions total gross marginin the first year of operations was $22,000 less than its traceblefixed selling and adminstrative express. Diego believes that if itdrops the West region, the East regions sales will grow by 5% inyear 2. Using the contribution approach for analyzing segmentprofitability and assuming all else remains constant in year2, whatwould be the profit impact of dropping the West regoins in year2? 15. Assume the West regions invest $47,000 in a new advertisingcampaign in year 2 that increases its unit sales by 20%. If allelse remains constant, what would be the profit impact of pursuingthe advertising campaign? Profit will ? By?