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: Rosa Umbrella 18,000 units $ 16.00 Decorated Umbrella 18,000 units $ 27.ee $ 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 $10.5e 2.se 1.se 4. 12.50 5.60 18.50 $12.ee 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? 3-0. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 16.000 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 Reg 2 Req 3A Reg 3B Roa 1 Reg 2 RAG BARA 30 Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations Decorated incremental Rosa Umbrella Umbrella Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) Reg 2 >

Answer 1

Calculation of Variable Cost per unit Rose Unbrella Decorated Umberellar Direct Material 10.50 12.50 Direct Labour 2.50 5.00 Variable Manufacturing Overheads 1.50 3.50 Variable Cost per unit 14.50 21.00 Sales Units 18000 18000 Selling Price 16 27 1. Determine the Icreaseaor Decrease in Profit Rose Decorated Unbrella Umberellar Saels Revenue (Selling Price *Units) 288000 486000 Varaible Cost (Variable Cost *Units) 261000 378000 Contribution Margin 27000 108000 Additional Development Cost 12000 Differential Profit 27000 96000 Incremnetal 198000 117000 81000 12000 69000

2. Shold Mohave Add Decorated to theRose Umbrella YES 1. Determine the Icreaseaor Decrease in Profit Demand of Decareted Unbrella Reduce to 16,000 Rose Decorated Unbrella Umberellar Incremnetal Saels Revenue (Selling Price *Units) 288000 432000 144000 Varaible Cost Variable Cost *Units) 261000 336000 75000 Contribution Margin 27000 96000 69000 Additional Development Cost 12000 12000 Differential Profit 27000 84000 57000 3. Shold Mohave Add Decorated to theRose Umbrella YES