Reference no: EM132582818

Diego Company manufactures one product that is sold for $79 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 50,000 units and sold 45,000 units.

Variable costs per unit:

Manufacturing:

Direct materials$29

Direct labor$16

Variable manufacturing overhead$2

Variable selling and administrative$4

Fixed costs per year:

Fixed manufacturing overhead$800,000

Fixed selling and administrative expense$516,000

The company sold 35,000 units in the East region and 10,000 units in the West region. It determined that $240,000 of its fixed selling and administrative expense is traceable to the West region, $190,000 is traceable to the East region, and the remaining $86,000 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.

Question 1: Assume the West region invests $40,000 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?