The Spinner model of Sunblocker 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 Sunblocker’s two options follows:

Required:

1. Determine whether Sunblocker should process the Spinner umbrellas further or sell them without decoration. Include the difference in net profit from processing them further.

2. Suppose that choosing to process the umbrellas further would reduce estimated demand to 8,000. Determine the impact of the decision to process further on Sunblocker’s profit.

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Spinner Umbrella Decorated Umbrella $8.00 10,000 units $19.00 $1.25 4.75 0.50 3.25 0.50 2.50 2.00 2.00 $4.25 $12.50 $15,000 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 10,000 units