E7-6 (Algo) Analyzing Special-Order Decision [LO 7-2, 7-3] MSI has been approached by a fourth-grade teacher from Portland about the possibility of creating a specially designed game that would be customized for her classroom and environment. The teacher would like an educational game to correspond to her classroom coverage of the history of the Pacific Northwest, and the state of Oregon in particular. MSI has not sold its products directly to teachers or school systems in the past, but its Marketing Department identified that possibility during a recent meeting. The teacher has offered to buy 1,200 copies of the CD at a price of $5.00 each. MSI could easily modify one of its existing educational programs about U.S. history to accommodate the request. The modifications would cost approximately $440 A summary of the information related to production of MSI's current history program follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit Sales price per unit $ 1.19 0.39 2.13 1.90 $ 5.61 $ 13.00 Required: 1. Compute the incremental profit (or loss) from accepting the special order. 2. Should MSI accept the special order? 3. Suppose the special order had been to purchase 1,200 copies of the program for $1.50 each. Compute the incremental profit (or loss) from accepting the special order under this scenario. 4. Suppose MSI is operating at full capacity. To accept the special order, it would have to reduce production of the history program. Compute the special order price at which MSI would be indifferent between accepting or rejecting the special order.
E7-6 (Algo) Analyzing Special-Order Decision [LO 7-2, 7-3] MSI has been approached by a fourth-grade teacher from Portland about the possibility of creating a specially designed game that would be customized for her classroom and environment. The teacher would like an educational game to correspond to her classroom coverage of the history of the Pacific Northwest, and the state of Oregon in particular. MSI has not sold its products directly to teachers or school systems in the past, but its Marketing Department identified that possibility during a recent meeting. The teacher has offered to buy 1,200 copies of the CD at a price of $5.00 each. MSI could easily modify one of its existing educational programs about U.S. history to accommodate the request. The modifications would cost approximately $440 A summary of the information related to production of MSI's current history program follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit Sales price per unit $ 1.19 0.39 2.13 1.90 $ 5.61 $ 13.00 Required: 1. Compute the incremental profit (or loss) from accepting the special order. 2. Should MSI accept the special order? 3. Suppose the special order had been to purchase 1,200 copies of the program for $1.50 each. Compute the incremental profit (or loss) from accepting the special order under this scenario. 4. Suppose MSI is operating at full capacity. To accept the special order, it would have to reduce production of the history program. Compute the special order price at which MSI would be indifferent between accepting or rejecting the special order.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![E7-6 (Algo) Analyzing Special-Order Decision [LO 7-2, 7-3]
MSI has been approached by a fourth-grade teacher from Portland about the possibility of creating a specially designed game that
would be customized for her classroom and environment. The teacher would like an educational game to correspond to her classroom
coverage of the history of the Pacific Northwest, and the state of Oregon in particular. MSI has not sold its products directly to teachers
or school systems in the past, but its Marketing Department identified that possibility during a recent meeting.
The teacher has offered to buy 1,200 copies of the CD at a price of $5.00 each. MSI could easily modify one of its existing educational
programs about U.S. history to accommodate the request. The modifications would cost approximately $440 A summary of the
information related to production of MSI's current history program follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost per unit
Sales price per unit
$ 1.19
0.39
2.13
1.90
$ 5.61
$ 13.00
Required:
1. Compute the incremental profit (or loss) from accepting the special order.
2. Should MSI accept the special order?
3. Suppose the special order had been to purchase 1,200 copies of the program for $1.50 each. Compute the incremental profit (or
loss) from accepting the special order under this scenario.
4. Suppose MSI is operating at full capacity. To accept the special order, it would have to reduce production of the history program.
Compute the special order price at which MSI would be indifferent between accepting or rejecting the special order.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F58f50c38-fbab-4904-b9db-7b0f64c24aff%2F69809e44-56f0-411d-b53c-f75a94937e36%2Fgzivvcs_processed.jpeg&w=3840&q=75)
Transcribed Image Text:E7-6 (Algo) Analyzing Special-Order Decision [LO 7-2, 7-3]
MSI has been approached by a fourth-grade teacher from Portland about the possibility of creating a specially designed game that
would be customized for her classroom and environment. The teacher would like an educational game to correspond to her classroom
coverage of the history of the Pacific Northwest, and the state of Oregon in particular. MSI has not sold its products directly to teachers
or school systems in the past, but its Marketing Department identified that possibility during a recent meeting.
The teacher has offered to buy 1,200 copies of the CD at a price of $5.00 each. MSI could easily modify one of its existing educational
programs about U.S. history to accommodate the request. The modifications would cost approximately $440 A summary of the
information related to production of MSI's current history program follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost per unit
Sales price per unit
$ 1.19
0.39
2.13
1.90
$ 5.61
$ 13.00
Required:
1. Compute the incremental profit (or loss) from accepting the special order.
2. Should MSI accept the special order?
3. Suppose the special order had been to purchase 1,200 copies of the program for $1.50 each. Compute the incremental profit (or
loss) from accepting the special order under this scenario.
4. Suppose MSI is operating at full capacity. To accept the special order, it would have to reduce production of the history program.
Compute the special order price at which MSI would be indifferent between accepting or rejecting the special order.
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