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 classroom bulletin board materials for teachers. A summary of the expected costs and revenues for MSI's two options follows: CD with CD Only 37,000 units Materials 37,000 units Estimated demand Estimated sales price Estimated cost per unit 31.00 $ 48.00 $ 5.75 8.00 8.00 8.50 S 30.25 $ 8.25 12.00 11.25 8.50 40.00 $105,000 Direct materials Direct labor Fixed manufacturing overhead Unit manufacturing cost Additional t cost Required 1. Based on the given data, Compute the increase or decrease in profit that would result if instructional materials were added to the CDs. CD Only CD with ions Materials Sales Revenue Variable Costs Contribution Margin Additional Development Costs Oifferential Profit (Loss)

Explanation / Answer

Answer

CD Only

CD with Instruction materials

Calculation

Amount ($)

Calculation

Amount ($)

Incremental

Sales Revenue

[37000x31]

1147000

[37000x48]

1776000

$629000

Variable costs

[37000 x (5.75+8+8)]

804750

[37000 x (8.25+12+11.25)]

1165500

$360750

Contribution margin

[1147000-804750]

342250

[1776000-1165500]

610500

$268250

Additional Development costs

None will occur

0

[given]

105000

$105000

Differential Profit (Loss)

$342,250

$505,500

$163,250

CD Only

CD with Instruction materials

Calculation

Amount ($)

Calculation

Amount ($)

Incremental

Sales Revenue

[37000x31]

1147000

[19000x48]

912000

-235000

Variable costs

[37000 x (5.75+8+8)]

804750

[19000 x (8.25+12+11.25)]

598500

-206250

Contribution margin

[1147000-804750]

342250

[912000-598500]

313500

-28750

Additional Development costs

None will occur

0

[given]

105000

105000

Differential Profit (Loss)

$342,250

$208,500

$(133,750)

CD Only

CD with Instruction materials

Calculation

Amount ($)

Calculation

Amount ($)

Incremental

Sales Revenue

[37000x31]

1147000

[37000x48]

1776000

$629000

Variable costs

[37000 x (5.75+8+8)]

804750

[37000 x (8.25+12+11.25)]

1165500

$360750

Contribution margin

[1147000-804750]

342250

[1776000-1165500]

610500

$268250

Additional Development costs

None will occur

0

[given]

105000

$105000

Differential Profit (Loss)

$342,250

$505,500

$163,250

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