Morning Sky, Inc. (MSI), manufactures and sells computer games.
The company has several product lines based on the age range of the
target market. MSI sells both individual games as well as packaged
sets. All 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 all the CDs itself as well as
the accessories and packaging for all of its products.
The gaming market has traditionally been targeted at teenagers and young adults; however, the increasing affordability of computers and the incorporation of computer activities into junior high and elementary school curriculums 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 capitalize on changes in the industry. The company currently has excess capacity and is investigating several possible ways to improve profitability.
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 2,700 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 $390. A summary of the
information related to production of MSI’s current history program
follows:
Direct materials | $ | 1.06 |
Direct labor | 0.43 | |
Variable manufacturing overhead | 2.06 | |
Fixed manufacturing overhead | 1.90 | |
Total cost per unit | $ | 5.45 |
Sales price per unit | $ | 12.00 |
Required:
1. Compute the incremental profit (or loss) from accepting
the special order.
Profit (or Loss): (increase/ decrease / No Effect) by
.
2. Should MSI accept the special order?
Yes | |
No |
3. Suppose that the special order had been to
purchase 2,700 copies of the program for $4.50 each. Compute the
incremental profit (or loss) from accepting the special order under
this scenario.
Profit (or Loss): (increase/ decrease / No Effect)
by .
4. Suppose that MSI is operating at full capacity.
To accept the special order, it would have to reduce production of
the history program. Compute the special order price at which MSI
would be indifferent between accepting or rejecting the special
order. (Round your answer to 2 decimal
places.)
Special Order Price:
Part-1: Computation of Incremetal Profit /Losss | |
Incremental revenue (2700*$5) | $13,500 |
Incremental costs: | |
Direct materials (2700*1.06) | $2,862 |
Direct labor (2700*0.43) | $1,161 |
Variable manufacturing costs (2700*2.06) | $5,562 |
Modification costs | $390 |
Total Incremental costs | $9,975 |
Incremental income(loss) | $3,525 |
Profit(or loss) increases by $3525 |
2. Yes accept the special order |
Part-3: Computation of Incremetal Profit /Losss | |
Incremental revenue (2700*$4.5) | $12,150 |
Incremental costs: | |
Direct materials (2700*1.06) | $2,862 |
Direct labor (2700*0.43) | $1,161 |
Variable manufacturing costs (2700*2.06) | $5,562 |
Modification costs | $390 |
Total Incremental costs | $9,975 |
Incremental income(loss) | $2,175 |
Profit(or loss) increases by $2175 |
Part-4 | |
Existing Sales Price | $12.00 |
Sale
Price need to recover additional cost (390/2700) |
$0.14 |
Special Order Price | $12.14 |
Let me know if any doubt in solution, kindly mark positive rating it would help me lot. |
Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based...
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All 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 all the CDs itself as well as the accessories and packaging for all of its products. The...
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All 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 all the CDs itself as well as the accessories and packaging for all of its products. The gaming...
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All 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 all the CDs itself as well as the accessories and packaging for all of its products. The gaming...
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...
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...
Required information E7-6 through E7-10. The following information applies to the questions displayed below.] Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All 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 all the CDs itself as well...
E7-5 Analyzing Special-Order Decision [LO 7-2, 7-3] 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...
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All 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 all the CDs itself as well as the accessories and packaging for all of its products. The gaming...
heck my work Required information MSI has always included games for younger children but now wants to expand its business to capitalize on changes in the industry. The company currently has excess capacity and is investigating several possible ways to improve profitability 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...
Required information (The following information applies to the questions displayed below.) Morning Sky, Inc. ( MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All 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 all the CDs itself as well as the...