Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 9,800 units per year for $9.00 each. Mohave has the following information about the cost of producing tote bags:

Direct materials	$	5
Direct labor		2
Variable manufacturing overhead		1
Fixed manufacturing overhead		2.00
Total cost per unit	$	10.00

Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 75 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags.

Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impressive sales. However, sales for the Azul model have been dismal. Mohaves information related to the Sand Trap line is shown below.

Segmented Income Statement for Mohaves
Sand Trap Beach Umbrella Products
	Indigo			Verde			Azul				Total
Sales revenue	$	60,000		$	60,000		$	30,000			$	150,000
Variable costs		34,000			31,000			26,000				91,000
Contribution margin	$	26,000		$	29,000		$	4,000			$	59,000
Less: Direct Fixed costs		1,900			2,500			2,000				6,400
Segment margin	$	24,100		$	26,500		$	2,000			$	52,600
Common fixed costs*		17,840			17,840			8,920				44,600
Net operating income (loss)	$	6,260		$	8,660		$	(6,920	)		$	8,000

*Allocated based on total sales revenue

Mohave has determined that eliminating the Azul model would cause sales of the Indigo and Verde models to increase by 10 percent and 15 percent, respectively. Variable costs for these two models would increase proportionately. Although the direct fixed costs could be eliminated, the common fixed costs are unavoidable. The common fixed costs would be redistributed to the remaining two products.

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 Mohaves two options follows:

	Rosa Umbrella			Decorated Umbrella
Estimated demand		14,000	units		14,000	units
Estimated sales price	$	12.00		$	23.00
Estimated manufacturing cost per unit
Direct materials	$	6.50		$	8.50
Direct labor		1.50			4.00
Variable manufacturing overhead		0.50			2.50
Fixed manufacturing overhead		3.00			3.00
Unit manufacturing cost	$	11.50		$	18.00
Additional development cost				$	14,000

Blossom, Inc., is a small company that manufactures three versions of patio tables. Unit information for its products follows:

		Table A		Table B		Table C
Sales price		$	53	$	57	$	71
Direct materials			11		12		13
Direct labor			2		4		8
Variable manufacturing overhead			5		5		5
Fixed manufacturing overhead			6		6		6
Required number of labor hours			0.5		0.5		1.0
Required number of machine hours			4.0		2.50		2.0

Blossom has determined that it can sell a limited number of each table in the upcoming year. Expected demand for each model follows:

Table A	50,000	units
Table B	25,000	units
Table C	25,000	units

1. Compute the difference in cost between making and buying the umbrella tote bag Differential Cost of Making Versus Buying 2. Should Mohave buy the tote bags or continue to make them? O Buy O Make 3-a. Suppose that the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $6,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag. erential Cost of Making Versus Buying Diff 3-b. Does this change your recommendation to Mohave? Yes No O 1-a. Complete the table given below, if Mohave Corp drops the Azul line. (Do not round intermediate calculations. Round Common Fixed Costs to the nearest whole dollar.) Verde Total Indigo Sales Revenue Variable Costs Contribution Margin Direct Fixed Costs Segment Margin Common Fixed Costs Net operating income loss) 1-b. Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much? Change in Net Operating Income (Loss) by 2. Should Mohave drop the Azul model? O Yes O No 3-a. Complete the table given below assuming that Mohave had no direct fixed overhead in its production information and the entire $51,000 of fixed cost was common fixed cost. Change in Contribution Contribution Margin Gained on Indigo Contribution Margin Gained on Verde Contribution Margin Lost on Azul Net Increase in Contribution Margin Change in Fixed Costs Net Change in Profit if Azul is Eliminated 3-b. Should it the drop Azul model? O Yes O No 3-C. What is the increase or decrease in the net operating income of Mohave? Change in Net Operating Income (Loss) by 1. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. Decorated Umbrella Incremental Rosa Umbrella Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) 2. Should Mohave add decorations to the Rosa umbrella? O Yes No 3-a. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 12,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. Rosa Decorated Incremental Umbrella Umbrella Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) 3-b. Should Mohave add decorations to the Rosa umbrella? O No Yes Required: 1 . Suppose that direct labor hours has been identified as the bottleneck resource. Determine how Blossom should prioritize production by rank ordering the products from 1 to 3. Product Table A Table B Table C Ranking 2. If Blossom has only 50,000 direct labor hours available, calculate the number of units of each table that Blossom should produce to maximize its profit. (Enter the products in the sequence of their preferences; the product with first preference should be entered first.) Product Units Produced e ho 3. uppose hat he number o machine hours has been identified as he most constrained resource products from 1 to 3 should io tize production Dy an ordering the ete osso Product Table A Table B Table C Ranking 4. If Blossom has only 245,000 machine hours available, calculate the number of units of each table that Blossom should produce to maximize its profit. (Enter the products in the sequence of their preferences; the product with first preference should be entered first. Product Units Produced