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:

Required:
1. Compute the difference in profit between selling the Rosa umbrella with the additional decorations or without.
2. Should Mohave add decorations to the Rosa umbrella?
3. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 8,000 units. Repeat requirements 1 and 2 under this newscenario.

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Rosa Umbrella Decorated Umbrella Estimated demand Estimated sales price Estimated manufacturing cost per unit 10,000 units $8.00 10,000 units 19.00 5.50 2.50 $ 14.00 $10,000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $2.50 1.50 0.50 2.00 $6.50 4.00 2.00 Unit manufacturing cost Additional development cost