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 text 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 27.000 units $ 23.00 Materials 27.000 units 38.00 $ $ $ 2.75 400 Ested demand Estimated sales price Esmated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit marutacturing cost Additional development cost 3.25 7.00 7 25 400 $14.25 3 21.00 $106.000 Required: 1. Based on the given data, Compute the increase or decrease in pront that would result instructional materials were added to the CDs ® Answer is not complete. CD Incremental Only Instructions Sale Revere Variable Costs Contbuic Davalament Differential Profit 2. Should MSI add the instructional materials or sell the CDs without them? Sel the CDs without insiructional Materials Add the instructional Materals 3-a. Suppose that the higher price of the CDs with instructional materiasis expected to reduce demand to 20 000 units. Complete the table given below based on Requirement 1 and 2 data Answer is not complete. CD with CD Only Instructions Incremental Variable costs Contribution Costs Differential Pront 3-b. Should MS and the instructional materisso sell the CDs without them? O sal the CDAwthout instructional Materials Add the Instructional Materials

Answer 1

Solution:

ن ن حمد Solution 1: MSI Particulars CD only Incremental 7 Sales Revenue (27000*Sales price) Variable costs (Variable cost per unit* 27000) Contribution margin Additional Developmental Costs 8 9 10 11 12 CD with instructions material $1,026,000 $ 472,500 $553,500 $105,000 $621,000 $290,250 $330,750 $0 $405,000 $182,250 $222,750 $105,000 Differential Profit (loss) $330,750 $448,500 $117,750 13 14 Solution 2: MSI should add instructions materials. 15 16 Solution 3a: 17 MSI 18 Particulars CD only Incremental 19 21 Sales Revenue (revised Units *Sales price) Variable costs (Variable cost per unit*units) Contribution margin Additional Developmental Costs $621,000 $290,250 $330,750 CD with instructions material $760,000 $350,000 $410,000 $105,000 $139,000 $59,750 $79,250 $105,000 $0 20 21 22 23 24 25 26 27 Differential Profit $330,750 $305,000 -$25,750 Solution 3b: MSI should sell the CDs without instructional materials. 28 29 30 31 32 33 34 35 36 38 39 40 41 44 45 46 47 48 3) Sheet353 Sheet356 Sheet49 (9) Sheet36 (9) She