Question

Diego Company manufactures one product that is sold for $81 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 52,000 units and sold 47,000 units.

Variable costs per unit:
Manufacturing:
Direct materials	$	20
Direct labor	$	20
Variable manufacturing overhead	$	4
Variable selling and administrative	$	6
Fixed costs per year:
Fixed manufacturing overhead	$	936,000
Fixed selling and administrative expense	$	552,000

The company sold 35,000 units in the East region and 12,000 units in the West region. It determined that $260,000 of its fixed selling and administrative expense is traceable to the West region, $210,000 is traceable to the East region, and the remaining $82,000 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.

a.  What is the unit product cost under variable costing?

b. What is the unit product cost under absorption costing?

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

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

Answer 1