Question

W Required information The following information applies to the questions displayed below) Morning Sky, Inc (MSI), manufactures and sell computer games The company has several product lines based on the age range of the target market, MSI sels both individual games as well as packaged sets. Al games are in CD format, and some utilize accessories such as Steering Wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured I the CDs itself as well as the accessories and packaging for all of its products 0 The gaming market has traditionally been targeted attenders and young adults however the increasing affordability of computers and the incorporation of computer activities into Junior high and elementary school cumculums has led to a significant increase in sales to younger children MSI has always included games for younger children but now wants to expand its business to capitale on changes in the industry. The company currently has excess choacity and is Investigating several possible ways to improve profitability 18 • MSI considering outsourcng the production of the Handheld control module used with some of its products. The company has received s bid from Monte Legend Co. (M ) to produce 22.000 units of the module per year for $7200 each. The following Information pertains to MSI production of the control modules to Directoriell Ure la Varanle autacturing overhead acturing over Cert MSI has determined that it could eliminate variable costs the control modules were produced externally, but none of the foved overhead is avoidable At this time, MS has no specific use in mind for the space that is currently dedicated to the control module production Required: 1. Compute the difference in cost between making and buying the control module 2. Should MSI buy the modules from MLC or continue to make them? 3-6. Suppose that the MSI space currently used for the modules could be used by a new product line that would generate $31.000 in annual profit Recompute the difference in cost between making and buying under this scenario 3-b. Does this change your recommendation to MSI Complete this question by entering your answers in the tabs below

Answer 1

1
	Per unit		Total 27000 units
	Make	Buy	Make	Buy
Direct materials	19		513000
Direct labor	9		243000
Variable manufacturing overhead	4		108000
Purchase cost		33		891000
Total			864000	891000
Difference in cost = 27000 (864000-891000)
2
Make, as cost of making is less
3a
	Make	Buy
Total cost	864000	891000
Opportunity cost	31000
Total relevant cost	895000	891000
Difference in cost = 4000 (895000-891000)
3b
Yes, now the recommendation is Buy