The Rosa model of Mohave Corp. is currently manufactured as a very plain umbrella with...
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Accounting
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 Mohaves two options follows:
Rosa Umbrella
Decorated Umbrella
Estimated demand
11,000
units
11,000
units
Estimated sales price
$
9.00
$
20.00
Estimated manufacturing cost per unit
Direct materials
$
3.50
$
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
$
7.50
$
14.00
Additional development cost
$
11,000
Rosa Umbrella Decorated Umbrella Incremental Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) Rosa Umbrella Decorated Umbrella Incremental Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss)
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