MSIS educational products currently are sola thout any supplemental materials. The company is consid instructional materials such as an overhead slide presentation, potential test questions, and classroom bulletin board materials for teachers. A summary of the expected costs and revenues for MSI's two options follows: Estimated demand Estimated sales price. Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost CD Only 42,000 units $26.00 $ 2.00 2.50 2.50 2.50 $9.50 CD with Instructional Materials 42,000 units $ 53.00 $ 2.25 5.50 5.75 2.50 $ 16.00 $ 125,000 Required: 1. Based on the given data, compute the increase or decrease in profit that would result if instructional materials were added to the CDs. 2. Should MSI add the instructional materials or sell the CDs without them? 3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 22,000 units. Complete th table given below based on this scenario.
MSIS educational products currently are sola thout any supplemental materials. The company is consid instructional materials such as an overhead slide presentation, potential test questions, and classroom bulletin board materials for teachers. A summary of the expected costs and revenues for MSI's two options follows: Estimated demand Estimated sales price. Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost CD Only 42,000 units $26.00 $ 2.00 2.50 2.50 2.50 $9.50 CD with Instructional Materials 42,000 units $ 53.00 $ 2.25 5.50 5.75 2.50 $ 16.00 $ 125,000 Required: 1. Based on the given data, compute the increase or decrease in profit that would result if instructional materials were added to the CDs. 2. Should MSI add the instructional materials or sell the CDs without them? 3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 22,000 units. Complete th table given below based on this scenario.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Morning Sky, Incorporated (MSI), manufactures and sells computer games. The company has several product lines based
on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD
format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has
developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products.
The gaming market has traditionally been targeted at teenagers and young adults; however, the increasing affordability of
computers and the incorporation of computer activities into junior high and elementary school curriculums has led to a
significant increase in sales to younger children. MSI has always included games for younger children but now wants to
expand its business to capitalize on changes in the industry. The company currently has excess capacity and is
investigating several possible ways to improve profitability.
MSI's educational products currently are sold without any supplemental materials. The company is considering the inclusion of
instructional materials such as an overhead slide presentation, potential test questions, and classroom bulletin board materials for
teachers. A summary of the expected costs and revenues for MSI's two options follows:
Estimated demand
Estimated sales price
Estimated cost per unit
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Unit manufacturing cost
Additional development cost
Req 1
Req 2
Required:
1. Based on the given data, compute the increase or decrease in profit that would result if instructional materials were added to the
CDs.
Complete this question by entering your answers in the tabs below.
CD Only
42,000 units
$26.00
2. Should MSI add the instructional materials or sell the CDs without them?
3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 22,000 units. Complete the
table given below based on this scenario.
3-b. Should MSI add the instructional materials or sell the CDs without them?
Req 3A
Sales Revenue
Variable Costs
Contribution Margin
Additional Development Costs
Differential Profit (Loss)
$ 2.00
2.50
2.50
Req 3B
2.50
$ 9.50
CD Only
CD with
Instructional
Materials
42,000 units
$ 53.00
Based on the given data, compute the increase or decrease in profit that would result if instructional materials were added to
the CDs.
$ 2.25
5.50
5.75
2.50
$ 16.00
$ 125,000
CD with Instructional
Materials
Incremental
S
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