Managerial accounting
Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The specialorder umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine. Lost Mine has offered to buy 2.600 of the US umbrellas at a price of $24 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production ofthe US umbrella: Direct materials $18.88 Direct labor 5.88 Variable manufacturing overhead 6.58 Fixed manufacturing overhead 2.58 Total cost $24.88 Regular sales price $32.88 ' Required: 1. Compute the incremental profit {or loss) from accepting the special order. 2. Should Mohave accept the special order? 3. Suppose that the special order had been to purchase 3,100 umbrellas for $21.00 each. Recompute the incremental profit (or loss} from accepting the special order under this scenario. 4. Assume that Mohave is operating at full capacity. Calculate the specialorder price per unit at which Mohave would be indifferent between accepting or rejecting the special order. \fThe 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 silkscreened design and embellishments. A summary ofthe expected costs and revenues for Mohave's two options follows: Rosa Decorated lhhrella Ulbrella Estimated demand 21,800 units 21,800 units Estimated sales price 5 23.00 5 33.00 Estimated manufacturing cost per unit Direct materials 5 13.50 5 15.50 Direct labor 3.50 6.00 Variable manufacturing overhead 2.50 4.50 Fixed manufacturing overhead 4.00 4.00 Unit manufacturing cost 5 23.50 $ 36.00 Additional development cost $10,600 I 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 limbs below. 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 prot if Mohave sells the Rosa Umbrella with the additional deoorations. Sales Revenue Variable Costs Contribution Margin Additional Development Costs Dierential Prot (Loss) Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The specialorder umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine. Lost Mine has offered to buy 2,600 of the US umbrellas at a price of $24 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production ofthe US umbrella: Direct materials $18.88 Direct labor 5.88 Variable manufacturing overhead 6.58 Fixed manufacturing overhead 2.58 Total cost $24.88 Regular sales price $32.88 | Required: 1. Compute the incremental profit {or loss) from accepting the special order. 2. Should Mohave accept the special order? 3. Suppose that the special order had been to purchase 3,100 umbrellas for $21.00 each. Recompute the incremental profit (or loss} from accepting the special order under this scenario. 4. Assume that Mohave is operating at full capacity. Calculate the specialorder price per unit at which Mohave would be indifferent between accepting or rejecting the special order. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute the incremental prot [or loss) from accepting the special order. _-_
