The Rosa model of Mohave Corp. is currently manufactured as a very plain umbrella with no decoration.
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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 silkscreened design and embellishments. A summary of the expected costs and revenues for Mohaves two options follows:
Rosa Umbrella Decorated Umbrella
Estimated demand units units
Estimated sales price $ $
Estimated manufacturing cost per unit
Direct materials $ $
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Unit manufacturing cost $ $
Additional development cost $
Required:
Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.
Should Mohave add decorations to the Rosa umbrella?
a Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.
b Should Mohave add decorations to the Rosa umbrella?
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