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 silkscreened design and embellishments. A summary of the expected costs and revenues for Mohaves two options follows:

Rosa Umbrella Decorated Umbrella

Estimated demand units units

Estimated sales price          $                        $

Estimated manufacturing cost per unit

Direct materials                   $                        $

Direct labor

Variable manufacturing overhead                      

Fixed manufacturing overhead                           

Unit manufacturing cost     $                        $

Additional development cost $

Required:

Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.

Should Mohave add decorations to the Rosa umbrella?

a Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.

b Should Mohave add decorations to the Rosa umbrella?