MSI\'s educational products are currently sold without any supplemental material

Question

MSI's educational products are currently sold without any supplemental materials. The company is considering the inclusion of instructional materials such as an overhead slide presentation, potential test questions, and class materials for teachers. A summary of the expected costs and revenues for MSI's two options follows: CD with Instructional CD Only 40,000 units Materials 40,000 units Estimated demand Estimated sales price Estimated cost per unt $ 34.00 51.00 s 2.00 2.75 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 9.50 9.50 10.00 13.50 12.75 Unit manufacturing cost Additional development cost 10.00 31.00 39.00 $105,000 Required: data, Compute the increase or decrease in profit that would result f instructional materials were added to the CDs. CD with Instructions Incremental CD Only Materials s 1,360,000 Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) 2,040,000

Explanation / Answer

Answer 1

840,000

($21 * 40,000)

1,160,000

($29 * 40,000)

Answer 2

Add the instructional materials

Explanation : Since by selling CD with instruction materials , profit increses by $255,000 , it is recommended to sell CD with instruction materials

Answer 3 a

840,000

($21 * 40,000)

638,000

($29 * 22,000)

Answer 3 b

Sell CD without instructional materials

Explanation : Since by selling CD with instruction materials , profit decreses by $141,000 , it is recommended to sell CD without instruction materials

CD only ($) CD with instruction materials ($) Incremental ($) Sales Revenue 1,360,000 2,040,000 680,000 Vaiable costs

840,000

($21 * 40,000)

1,160,000

($29 * 40,000)

320,000 Contribution Margin 520,000 880,000 360,000 Additional Development costs 105,000 105,000 Differential Profit / (Loss) 520,000 775,000 $255,000

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