M } ences The Rosa model of Mohave Corporation is currently manufactured as a very plain umbrella with no…

M } ences The Rosa model of Mohave Corporation is currently manufactured as a very plain umbrella with no…

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The Rosa model of Mohave Corporation 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:
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
Rosa Umbrella
15,000 units
$ 13.00
$7.50
2.50
1.50
3.00
$14.50
Decorated Umbrella
15,000 units
$ 24.00
$9.50
5.00
3.50
3.00
$ 21.00
$ 15,000
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 the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 13,000
units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.
3-b.Suppose the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 13,000
units. Should Mohave add decorations to the Rosa umbrella?

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