Moming Sky, Inc. (MS), manufactures and sells computer games. The company has se

Question

Moming Sky, Inc. (MS), 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, MSl 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 aways 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. velue: 2.00 points Required information 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 2,500 copies of the CD at a price of S5.00 each. MSI could easily modify one of its existing educational programs about U.S. history to accommodate the request. The modifications would cost approximately $360. A summary of the information related to production of MSI's current history program follows: Direct materials Direct labor ariable manufacturing overhead Fixed manufacturing overhead 1.23 0.43 2.19 1.80 5.65 $13.00 Total cost per unit price per unit Sales Required 1. Compute the incremental profit (or loss) from accepting the special order fit (or Loss) by

Explanation / Answer

Per unit Total 2500 Incremental revenue 5 12500 Incremental costs: Direct materials 1.23 3075 Direct labor 0.43 1075 Variable manufacturing overhead 2.19 5475 Modifications cost 360 Total Incremental costs 9985 Incremental net operating income(loss) 2515 Profit increases by $2515 2 Yes 3 Per unit Total 2500 Incremental revenue 4.5 11250 Incremental costs: Direct materials 1.23 3075 Direct labor 0.43 1075 Variable manufacturing overhead 2.19 5475 Modifications cost 360 Total Incremental costs 9985 Incremental net operating income(loss) 1265 Profit increases by $1265 4 Special order price=13+(360/2500)= $13.14

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