FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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PA7-4 (Static) Analyzing Sell-or-Process-Further Decision [LO 7-2, 7-6] The Rosa model of Mohave Corporation 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: Estimated demand Estimated sales price Estimated manufacturing cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost Rosa Umbrella 10,000 units $ 8.00 $ 2.50 1.50 0.50 2.00 $ 6.50 Decorated Umbrella 10,000 units $19.00 $5.50 4.00 2.50 2.00 $14.00 $ 10,000
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Transcribed Image Text:PA7-4 (Static) Analyzing Sell-or-Process-Further Decision [LO 7-2, 7-6] The Rosa model of Mohave Corporation 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: Estimated demand Estimated sales price Estimated manufacturing cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost Rosa Umbrella 10,000 units $ 8.00 $ 2.50 1.50 0.50 2.00 $ 6.50 Decorated Umbrella 10,000 units $19.00 $5.50 4.00 2.50 2.00 $14.00 $ 10,000
s 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 the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 8,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. 3-b. Suppose the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 8,000 units. Should Mohave add decorations to the Rosa umbrella? Complete this question by entering your answers in the tabs below.
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Transcribed Image Text:s 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 the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 8,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations. 3-b. Suppose the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 8,000 units. Should Mohave add decorations to the Rosa umbrella? Complete this question by entering your answers in the tabs below.
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Step 1: brief explanation of cost-volume-profit (CVP) profit analysis:
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Step 2: Incremental analysis when the demand for the decorated umbrella is 10,000 units
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Step 3: Calculation of the incremental profit or loss when The demand for he decorated umbrella will fall
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