Question

I need help getting the correct answer

Check m 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 Estimated demand Estimated sales price Estimated manufacturing cost 13,e0e units $ 11.00 13,000 units $ 22.00 per unit Direct materials $ $ 1.50 7.50 5.50 4.00 Direct labor Variable manufacturing 2.50 0.50 overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost 2.00 2.00 $ 13,000 16.00 9.50 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 that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 11,000 units Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations 3-b. Should Mohave add decorations to the Rosa umbrella?

Answer 1

Solution 1:

Profit, if mohave sells Rosa umbrella = ($11 - $9.50) * 13000 = $19,500

Profit, if mohave sells Decorated umbrella = ($22 - $16) * 13000 - $13,000 = $65,000

Increase or decrease in profit, if mohave sells rose umbrella with additional decorations = $65,000 - $19,500 = $45,500

Solution 2:

Yes, mohave should add decorations to rosa umbrella.

Solution 3a:

Profit, if mohave sells Rosa umbrella = ($11 - $9.50) * 13000 = $19,500

Profit, if mohave sells Decorated umbrella = Sales - Variable costs - Fixed costs

= (11000*22) - (11000*$14) - (13000*$2 + $13,000) = $49,000

Increase or decrease in profit, if mohave sells rose umbrella with additional decorations = $49,000 - $19,500 = $29,500

Solution 3b:

Yes, mohave should add decorations to rosa umbrella.