Pacfic MSI has been approached by a fourth-grade teacher from Portdand about he

Question

Pacfic MSI has been approached by a fourth-grade teacher from Portdand about he possibility of creating a specialy designed game that would be customized for her classrcom and environment The teacher would like an educaional game to correspond to her classroom coverage of the Norhwest, and the state oOrn in paricular. MSI has not scld ita products direcdy to teachers cr shool systerns in the past, but ita Markeing Department idantfied that posability during a rooent mooting. history of the The teacher has offered to buy 1,800 copies of the CD at a price of $5.00 each. MSI could easly modfy one of its exisšng educatonal programs about curront history program follows: U.S. history to accommodate the request The modifications would cost approximately 3460. A summary of the information related to production of MSI'S Direct matonials Drect labor Variable manufacturing overhead 2.12 Fixed manufacturing overead 2.00 $1.08 0.30 Total cost per unit Sales price per unit Required 1. Compute the incremental profit (or loss) from accepting the speoal order. 1Compu indremental profe r 2. Should MSI accept the special order? Yes No 3. Suppose that the spocial order had boan to purohase 1,800 copias of the program for $4.50 oach. Ccmpute the incremental profit (cr loss) from accopting the special order under this scenario by 4 uppose that M lis operan at full capac y To accept the spec al onder,?would have to reduce production of the history pro ram or pute the special order pnce at wh MSI wou be indiferent between accept g O ejecting the special order Round your answer to 2 decimal places

Explanation / Answer

Per unit Total Incremental revenue 5 9000 Costs: Direct materials 1.08 1944 Direct labor 0.3 540 Variable manufacturing overhead 2.12 3816 Modifications cost 460 Total cost 6760 Incremental income 2240 Profit increases by $2240 2 Yes 3 Per unit Total Incremental revenue 4.5 8100 Costs: Direct materials 1.08 1944 Direct labor 0.3 540 Variable manufacturing overhead 2.12 3816 Modifications cost 460 Total cost 6760 Incremental income 1340 Profit increases by $1340 4 Special order price=12+(460/1800)= $12.26

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