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 scented design and embellishment. a summer of the expected costs and revenues for mogave's two options below:

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: pluti udy Rosa Umbrella 21,000 units $ 23.00 Decorated Umbrella 21,000 units $ 33.00 stic 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 this $ 13.50 3.50 2.50 4.00 $ 23.50 $ 15.50 6.00 4.50 4.00 $ 30.00 $10,000 of Moha and em mand Required: 1. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. cung uring Rosa Umbrella Decorated Umbrella Incremental Increase Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) bron lopment Cost Los) ve add decor 2. Should Mohave add decorations to the Rosa umbrella? the higher nal decorations Yes No

Answer 1

Ans;

1.

	Rosa Umbrella	Decorated Umbrella	Incremental
Sales Revenue	$        4,83,000	$                  6,93,000	$      2,10,000
Variable costs	$        4,09,500	$                  5,46,000	$      1,36,500
Contribution Margin	$           84,000	$                     84,000	$                  -
Additional Development cost	$                    -	$                     10,000	$         10,000
Differencial Profit (Loss)	$          -10,500	$                     53,000	$         63,500

2.

Yes Mohave should add decorations to Rosa Umbrella.

3.

If sales units Decline to 19,000 Units for decorated Umbrella:

	Rosa Umbrella	Decorated Umbrella	Incremental
Sales Revenue	$        4,83,000	$                  6,27,000	$      1,44,000
Variable costs	$        4,09,500	$                  4,94,000	$         84,500
Contribution Margin	$           84,000	$                     84,000	$                  -
Additional Development cost	$                    -	$                     10,000	$         10,000
Differencial Profit (Loss)	$          -10,500	$                     39,000	$         49,500

4.

Yes Mohave should add decorations to Rosa Umbrella.

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