7L-3

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 21,000 units $ 23.00 Decorated Umbrella 21,000 units $ 33.00 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 $ 13.50 3.50 2.50 4.00 $ 23.50 $ 15.50 6.00 4.50 4.00 $ 30.00 $10,000 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 19,000 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 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) Reg 1 Reg 2 Req Req 3B Should Mohave add decorations to the Rosa umbrella? Yes ONO Reg 1 Reg 2 Req 3A Req 3B Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 19,000 units. 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) Reg 1 Reg 2 Req Req 3B Should Mohave add decorations to the Rosa umbrella? Yes No