Solution :
1. Incremental analysis when the demand for the decorated umbrella is 10,000 units.
$80000 $190000 $110000
$ 45000 $120000 $75000
Contribution $35000 $70000 $35000
--- $10000 $10000
development cost.
$35000 $60000 $25000
The company earns an additional profit of if it decorates and sells the Rosa umbrella.
2. The company, Mohave should add the decorations to the Rosa umbrella as this would increase the net revenues of the company by an amount of $25,000.
3.a. The demand for he decorated umbrella will fall to 8,000 units due to the higher price. If the company does not make any changes to the Rosa umbrella, it could sell 10,000 units.
The incremental profit or loss is :
Incremental analysis when the demand for the Rosa umbrella is 10,000 units and for the decorated umbrella is 8,000 units is given below:
$80,000 $152,000 $72,000
$45,000 $96,000 $51,000
Contribution $35,000 $56,000 $21,000
---- $10,000 $10,000
development cost.
$35,000 $46,000 $11,000
The incremental profits are : $11,000.
3.b. The company should decorate and sell 8000 units of the decorated umbrellas as the increase in the net profit is $11,000.
