Question

The Rosa model of Mohave Corp. is currently manufactured as a very plain umbrella with no decoration. The company is considering changing this product to a much more decorative model by adding a silk-screened design and embellishments. A summary of the expected costs and revenues for Mohave's two options follows: Decorated Umbrella 13,000 units $ 22.00 Rosa Umbrella Estimated demand 13.000 units Estimated sales price $ 11.00 Estimated manufacturing cost per unit Direct materials $ 5.50 Direct labor 1.50 Variable manufacturing overhead 0.50 Fixed manufacturing overhead 2.00 Unit manufacturing cost $ 9.50 Additional development cost $ 7.50 4.00 2.50 2.00 $ 16.00 $13,000 Required: 1. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. 2. Should Mohave add decorations to the Rosa umbrella? 3-a. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 11,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. 3-b. Should Mohave add decorations to the Rosa umbrella? Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Req 3A Req 3B Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. Rosa Umbrella Decorated Umbrella Incremental Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) - Rega Reg 2 >

Answer 1

Calculation of Variable Cost per unit Rose Unbrella Decorated Umberellar Direct Material 5.50 7.50 Direct Labour 1.50 4.00 Variable Manufacturing Overheads 0.50 2.50 Variable Cost per unit 7.50 14.00 Sales Units 13000 13000 Selling Price 11 22 1. Determine the Icreaseaor Decrease in Profit Rose Decorated Unbrella Umberellar Incremnetal Saels Revenue (Selling Price *Units) 143000 2860001 143000 Varaible Cost (Variable Cost *Units) 97500 182000 84500 Contribution Margin 45500 104000 58500 Additional Development Cost 13000 13000 Differential Profit 45500 91000 45500 2. Shold Mohave Add Decorated to the Rose Umbrella YES

1. Determine the Icreaseaor Decrease in Profit Demand of Decareted Unbrella Reduce to 11,000 Rose Decorated Unbrella Saels Revenue (Selling Price *Units) 143000 242000 99000 Varaible Cost (Variable Cost *Units) 97500 154000 56500 Contribution Margin 45500 88000 42500 Additional Development Cost 13000 13000 Differential Profit 45500 75000 29500 3. Shold Mohave Add Decorated to the Rose Umbrella YES