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:
volue 0.61 points Required Information 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 nstructional Matenals CD Only Estimaied dernand Fstimated sales price Estimated cost per unit 35,000 units $ 27 35,000 units $ 46 C $ 475 $ 725 Direct materials Direct labor Vanable manutacturing overnead Fixed manufacturing overhead 7.00 COC 7.50 26.25 11.00 10 2 7.50 36.00 Unit manufacturing cost Additonal development cost $105,00 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 Materials Salcs Roevenuc Variable Ccsts Contribution Margin Additional Development Costs Dilferenlial Frofit (Loss)

Answer 1

Req 1:
			CD Only	CD with	Incremental
				Instruction
Sales revenue			945000	1610000	665000
Variable cost			656250	997500	-341250
Contribution Margin			288750	612500	323750
Additional Development Cost			0	105000	-105000
Differential Profit/(Loss)			288750	507500	218750
MSI should
Add Instruction Manual
Req 3:
			CD Only	CD with	Incremental
				Instruction
Sales revenue			945000	1012000	67000
Variable cost			656250	627000	29250
Contribution Margin			288750	385000	96250
Additional Development Cost			0	105000	-105000
Differential Profit/(Loss)			288750	280000	-8750
MSI should
Sell the CD without Insttruction Manual.