Question

Saved Help Save & Exit Check my The Rosa model of Mohave Corp. is currently manufactured as a very plain umbrella with no decoration. The company is considerin 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: Rosa Umbrella 24,000 units $26.00 Decorated Umbrella 24, eee units $36.ee 18.se Estimated demand Estimated sales price Estimated manufacturing cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost 6.ee $ 16. Se 3.5e 2.se S.ee $ 27.50 4. Se $ 34.00 Sie, eee 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 22,000 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? < Prey 8 of 8 Next Joa a to search O S @ 090

Answer 1

Calculation of Variable Cost per unit Rose Unbrella Decorated Umberellar Direct Material 16.50 18.50 Direct Labour 3.50 6.00 Variable Manufacturing Overheads 2.50 4.50 Variable Cost per unit 22.50 29.00 Sales Units 24000 24000 Selling Price 26 36 1. Determine the Icreaseaor Decrease in Profit Rose Decorated Unbrella Umberellar Saels Revenue (Selling Price *Units) 624000 864000 Varaible Cost (Variable Cost *Units) 540000 696000 Contribution Margin 840001 168000 Additional Development Cost 10000 Differential Profit 84000 158000 Incremnetal 240000 156000 84000 10000 74000

2. Shold Mohave Add Decorated to the Rose Umbrella YES 1. Determine the Icreaseaor Decrease in Profit Demand of Decareted Unbrella Reduce to 22,000 Rose Decorated Unbrella Umberellar Incremnetal Saels Revenue (Selling Price *Units) 624000 792000 168000 Varaible Cost (Variable Cost *Units) 540000 638000 98000 Contribution Margin 84000 154000 70000 Additional Development Cost 10000 10000 Differential Profit 84000 144000 60000 3. Shold Mohave Add Decorated to theRose Umbrella YES