The Rosa model of Mohave Corp. is currently manufactured as a very plain umbrell

Question

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 Rosa Decorated Umbrella Umbrella 29,000 units 29,000 units Estimated demand Estimated sales price Estimated manufacturing cost per unit 31.00 $ 41.00 21.50 4.50 3.50 6.00 35.50 S 23.50 7.00 5.50 6.00 42.00 512,000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost Required 1. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations osa Umbrella UmbrellaIncremental Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss)

Explanation / Answer

899000

(29000*31)

1189000

(29000*41)

855500

(29000*(21.50+4.50+3.50))

1044000

(29000*(23.50+7+5.50))

Part 2

Yes, it will increase profit by 89500

Part 3-a

899000

(29000*31)

1107000

(27000*41)

855500

(29000*(21.50+4.50+3.50))

972000

(27000*(23.50+7 +5.50))

Part 3-b

Yes, it will still increase profit by 79500

Rosa umbrella decorated umbrella incremental Sales revenues

899000

(29000*31)

1189000

(29000*41)

290000 Variable cost

855500

(29000*(21.50+4.50+3.50))

1044000

(29000*(23.50+7+5.50))

(188500) Contribution margin 43500 145000 101500 Additional development costs (12000) (12000) Differential profit 43500 133000 89500

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