Managerial Accounting: PA7-4 The Rosa model of Mohave Corp. is currently
Managerial Accounting PA7-4 Sell or Process 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 Umbrella Decorated Umbrella Estimated demand (units) 10,000 10,000 Estimated sales price 8.00 19.00 Estimated manufacturing cost per unit Direct materials 2.50 5.50 Direct labor 1.50 4.00 Variable manufacturing overhead 0.50 2.50 Fixed manufacturing overhead 2.00 2.00 Unit manufacturing cost 6.50 14.00 Additional development cost 10,000 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. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 8,000 units. Repeat requirements 1 and 2 under this new scenario.
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