MSI has been approached by a fourth-grade teacher from Portland about the possbi

Question

MSI has been approached by a fourth-grade teacher from Portland about the possbility of creating a specialy designed game that would be an educational game to correspond to her classroom coverage of the history of the past, but its Marketing Department identified that possibility during a recent meein customined for her classroom and Pacific Northwest, and the state of Oregon in particular MSi has not sold ts environment The teacher would Re products dinecty to tches or school sysems in the The teacher has offered to buy 2,100 copies of the CD at a price of $5.00 each. MSI could easily modify one of ts existing educational prorams about U.S. nistory to acommodale he nqpent The nodtcarions would cost approximately $470. A summary of the information related to production of MSt's ourrent history program follows Direct materials Direct labor S 1.22 0.50 2.13 1.90 Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit Sales price per uni Required: 1. Compute the incremental proft (or loss) from accepting the special onder. 6.150 (or Loss) Increases by 2. Should MSI accept the special order? incremental pro jor loss) hom acctg e specual ander under Pa sonare Yes 3. Suppose hat the special order had been to purchase 2,100 copes of the program for 54.50 each Compute the

Explanation / Answer

SOLUTION

1.

2. Yes, the offer should be accepted.

3.

4. Special oredr per unit = Incremental cost + Contribution lost per unit

= $4.08 + ($12.00 - $3.85)

= $12.23

Amount ($) Incremental Revenue (2,100 * $5) 10,500 Incremental Variable Costs (2,100 * ($1.22 + $0.50 + $2.13)) (8,085) Modification Costs (470) Incremental Profit 1,945

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