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

Question

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.

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 1,100 copies of the CD at a price of $5.00 each. MSI could easily modify one of its existing educational programs about U.S history to accommodate the request. The modifications would cost approximately 5420. A summary of the information related to production of MSI's current history program follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead S 1.19 0.40 2,18 1.90 S 5.67 $12.00 Total cost per unit Sales price per unit Required 1. Compute the incremental profit (or loss) from accepting the special order Profit (or Loss) by

Explanation / Answer

1.Cost of Special order = Direct Materials + Direct Labour + Variable Manufacturing Overhead +Cost of Modification

= $ 1.19 + $ 0.40 + $ 2.18 + ($ 420 / 1100)

= $ 1.19 + $ 0.40 + $ 2.18 + 0.38

= $ 4.15 Per CD

Profi or (Loss)= Sale of Special Order - Cost of Special Order

=(1100 * $ 5) -(1100 * $4.15)

= $ 5,500 - $ 4,565

= $ 935

So Profit Incrased by $ 935

2. YES MSI should accept the special order

3. If Special Order Sales Price will $ 4.5

Profi or (Loss)= Sale of Special Order - Cost of Special Order

=(1100 * $ 4.5) -(1100 * $4.15)

= $ 4,950 - 4,565

= $ 385

So Profit Incrased by $ 385

4. If the Production Capcity is full than,

Special Order Price = Sales Price of current CD + Modification expenses

= $ 12 + ($ 420/ 1100)

= $ 12 + $ 0.38

= $ 12.38

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