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SOLUTION Variable costs- 1. 2. Mohave should add the decorations to the Rosa umbrella because it will increase profit by $25,000 3A. 3B. Mohave should add the decorations to the Rosa umbrella because it will increase profit by $11,000 Rosa umbrella ($) Decorated Umbrella ($) Direct materials 2.50 5.50 Direct labor 1.50 4.00 Variable manufacturing overhead 0.50 2.50 Variable costs 4.50 12

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Finder File Edit View Go Window Help ? ey , L 51% ?L,? )) Tue Jun 19 7:09 PM Alex a E ezto.mneducation.com Home alamo.edu McGraw-Hill Connect Chapter 7 Exercises 11.12 points The Rosa model ot Mohave Corp. is currently manufactured as a very plain umbrela 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 Decorated Umbrella Umbrella Estimated demand Esimated sales price Essimated manutachuring cost per unit 10,000 unrs 10,00 unts S 8.00 S 19.00 Direct materials Direct labor S 2.50 1.50 0.50 S 5.50 4.00 2.50 Fixed manufacturing overhead Unit manufacturing cos: Additional development cost 5 6.505 14.00 $10,000 Required: 1. Determine the increase or decrease in profit if Mohave sels the Rosa Umbrella with the additional decorations. Sales Revenue riable Costs n Margin Additional Development Costs Differential Profit (Loss) 2. Should Mohave add decorations to the Rosa umbrella? O No ?Yes 3-a. Suppose that the higher price of the decorated umbre a is expected to reduce estimated demand for this product to 8,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations Sales Revenue Variable Costs 19 popcorntime ap

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SOLUTION

Variable costs-

2. Mohave should add the decorations to the Rosa umbrella because it will increase profit by $25,000

3A.

3B. Mohave should add the decorations to the Rosa umbrella because it will increase profit by $11,000

Rosa umbrella ($) Decorated Umbrella ($) Direct materials 2.50 5.50 Direct labor 1.50 4.00 Variable manufacturing overhead 0.50 2.50 Variable costs 4.50 12

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Finder File Edit View Go Window Help ? ey , L 51% ?L,? )) Tue Jun 19 7:09 PM Ale

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