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?!! Apps-è 0 mvww.andfrtroe D Home ISTInet ?:-cengar MMcGraw 1.? Cornec, a Newtub Se.th ?? workdayoos PA7-4 Analyzing Sell-or-Process-Further Decision LO 7-2,7-6 The Rosa model of Mohave Corp, ts curently manustactured as a very plan umbresla with no decoration The company is conesisering changing this sproduct to a much more decorative model by adding a sik screened design and embellishments. A summary of the expected costs and revenues for Mohave's two options follows Rosa 6,000 units units Estimated demand Estimated sales price Estimated manufacturing cost per unt 1400 2500 Direct materials Direct labor Variable manufacturing overhead Fxed manufacturing overhead 8 50 2 50 S 10 50 5 00 3 50 1 50 Unit manufacturing cost Additional development cost Required 1. Determine the increase or decrease in profte it Monave sells the Rosa Umbrella with the addtiona decorations dIncremental Sales Revenue Variable Costs Additional Development Costs Differential Profit (Loss) O Type here to search

Explanation / Answer

Answer 1 Determination of increase or decrease in profit Rosa Umbrella (16000 units) Decorated Umbrella (16000 units) Incremental Profit / (loss) Sales Revenue $224,000.00 $400,000.00 Variable Costs $200,000.00 $304,000.00 Contribution Margin $24,000.00 $96,000.00 Additional Development cost $10,000.00 Differential Profit / (loss) $24,000.00 $86,000.00 $62,000.00 Answer 2 Yes , Mohave Corp.should add decorations to Rosa Umbrella as there will be incremental profit of $62000 by adding decoration. Answer 3 Determination of increase or decrease in profit if 14000 units of decorated umbrella are sold Rosa Umbrella (16000 units) Decorated Umbrella (14000 units) Incremental Profit / (loss) Sales Revenue $224,000.00 $350,000.00 Variable Costs $200,000.00 $266,000.00 Contribution Margin $24,000.00 $84,000.00 Additional Development cost $10,000.00 Differential Profit / (loss) $24,000.00 $74,000.00 $50,000.00 Answer 4 Yes , Mohave Corp.should add decorations to Rosa Umbrella as there will be incremental profit of $50000 by adding decoration.

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