Question

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 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 1,800 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 $490. A summary of the information related to production of MSI's current history program follows. Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit Sales price per unit $ 1.14 8.46 2.14 1.99 $5.64 $13.00 Required: 1. Compute the incremental profit (or loss) from accepting the special order. 2. Should MSI accept the special order? 3. Suppose that the special order had been to purchase 1,800 copies of the program for $1.50 each. Compute the incremental profit (or loss) from accepting the special order under this scenario. 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute the incremental profit (or loss) from accepting the special order.

Answer 1

Fixed costs do not change with change in activity level

Incremental Profit = Selling price – Incremental costs

= (5-1.14-0.46-2.14)*1800 – 490

= $1,778

Profit will increase by $1,778

2.MSI Should accept as benefit

1. Incremental effect on profit if POP is eliminated = Common Fixed costs saved – Segment Margin lost

= 0-200

= -$200

i.e. profits will reduce by $200

2.Should not drop since profits will reduce

3-a. Incremental effect = 1000-200

= $800

i.e. Profits will increase by $800

3-b Yes, should drop

3.Incremental profit = (1.50-1.14-0.46-2.14)*1800 – 490

= -$4,522

Profit will decrease by $4,522

4.Indifference price = Regular selling price + Incremental costs

= 13 + 490/1800

= $13.2722

i.e. $13.27 per unit