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i Chrome File Edit View History Bookmarks People Window Help WMU-Central Authentication (25) Saad Lam jarred-Gha G screenshot mac . Google Sear x 3 YOSER C ezto.mheducation.com/hm.tpx 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 2,700 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 S480. A summary of the information related to production of MSI's current history program follows: Direct materials Direct labor Variable manufacturing overhend Fixed manufacturing overhead 0.45 2.05 Total cost per unit Sales price per unit 5.64 $13.00 Required 1. Compute the incremental profit (or loss) from accepting the special order Loss by 2. Should MSI accept the special order? O No 3. Suppose that the special order had been to purchase 2,700 copies of the program for S4.50 each. Compute the incremental profit (or loss) from accepting the special order under this scenario. 4. Suppose that 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. (Round your answer to 2 decimal places.)

Explanation / Answer

1. Profit increases by $3,192

Explanation:

Variable cost per CD:

Direct material=$1.14

Direct labour=$0.45

Variable manufacturing overhead=$2.05

Total variable cost per CD=$3.64

Incremental profit:

Incremental sales revenue (2700×$5)=$13,500

Less Incremental variable cost(2700×$3.64)=$9,828

Less cost of modification=$480

Incremental profit=$3,192

2. Yes, accept the special order as it increase the profit by $3,192.

3.

Incremental sales revenue (2700×$4.50)=$12,150

Less incremental variable cost(2700×$3.64)=$9,828

Less cost of modification=$480

Incremental profit=$1,842

4.

If MSI takes special order his cost will get increase by $480/2700 CDs=$0.18(rounded to 2 decimal)

So new sales price would be:

Sales price per CD=$13

Add extra cost of modification=$0.18

New sales price per CD=$13.18

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