Safari File Edit View History Bookmarks Develop Window Help 75% \" Sun 6:52 PM a

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Safari File Edit View History Bookmarks Develop Window Help 75% " Sun 6:52 PM a ezto.mheducation.com The Rosa model of Mohave Corp. is cumenty man.factured a a very plain umbrelia with no decoration. The s two options tollows company is considering changing this product to a much more decoratve f de by addrg·shereered ·d eroeitmert s 24.00 16.50 1 Determine the inorease or decrease in proti f Mohave sels the Rosa Umbrulla w with the addisional decorations 2 Should Mohave add decorations to the to neduce estimated demand for tis product to 20.000 units Deternsine the increese or decrease in poft f Moheve sethe Rota Unbeka w hPebdonorw

Explanation / Answer

1.Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with additional decorations.

2.Yes.

Since we have an incremental profit of $67,000, we need to add decorations to Rosa umbrella.

3-a

If the demand of decorated Rosa umbrella is reduced to 20,000 units then the incremental profit is reduced by ($67,000 - $53,000) =>$14,000.

Rosa Umbrella Decorated umbrella Incremental Sales revenue (22,000 * 24.00 , 34.00) $528,000 $748,000 $220,000 Variable costs [22,000*($14.50 + 3.50+2.50)] , [22,000 *(16.50+6+4.50)] (451,000) (594,000) ($143,000) contribution margin $77,000 $154,000 $77,000 Addtional development costs nil ($10,000) ($10,000) Differential Profit (loss) $77,000 $144,000 $67,000

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