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 20,000 units $ 22.00 Decorated Umbrella 20,000 units $ 32.00 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 $ 12.50 3.50 2.50 4.00 $ 22.50 $ 14.50 6.00 4.50 4.00 $ 29.00 $10,000 Required: 1. 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) 2. Should Mohave add decorations to the Rosa umbrella? O No O Yes 3-a. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 18,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. Dora Decorated 3-a. Suppose that the higher price of the decorated umbrella with the additional decorations. expected to reduce estimated demand for this product to 18,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella Rosa Umbrella Decorated Umbrella Incremental Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) 3-b. Should Mohave add decorations to the Rosa umbrella? 0 Yes O No eBook & Resources eBook: Analyze a sell-or-process-further decision. eBook: Define and identify relevant costs and benefits. 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 20,000 units $ 22.00 Decorated Umbrella 20,000 units $ 32.00 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 $ 12.50 3.50 2.50 4.00 $ 22.50 $ 14.50 6.00 4.50 4.00 $ 29.00 $10,000 Required: 1. 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) 2. Should Mohave add decorations to the Rosa umbrella? O No O Yes 3-a. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 18,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. Dora Decorated 3-a. Suppose that the higher price of the decorated umbrella with the additional decorations. expected to reduce estimated demand for this product to 18,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella Rosa Umbrella Decorated Umbrella Incremental Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) 3-b. Should Mohave add decorations to the Rosa umbrella? 0 Yes O No eBook & Resources eBook: Analyze a sell-or-process-further decision. eBook: Define and identify relevant costs and benefits
