Question

manufactured all the CDs itselt as well as the accessories and packaging for all OT 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'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 Only 44,880 units $ 28.00 CD with Instructional Materials 44, eee units $ 55.00 Estimated demand Estimated sales price Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost $ 3.00 3.50 3.50 3.50 $ 13.50 $ 3.25 6.50 6.75 3.se $ 28.09 $125,083 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. 2. Should MSI add the instructional materials or sell the CDs without them? 3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 21.000 units. Complete the table given below based on Requirement 1 and 2 data. 3-b. Should MSI add the instructional materials or sell the CDs without them? Complete this question by entering your answers in the tabs below. < Prey 10 of 12 Next > to search II

Answer 1

1) Calculation of Differential Profits :- Demand = 44000 units

Particulars	CD Only (A)	CD with Instructions Materials (B)	Incremental (A-B)
Sales Revenue (Demand * Sales Price Per unit)	$1232000	$2420000	$1188000
Less : Variable Cost (Demand * Variable Cost Per Unit)	($440000)	($726000)	($286000)
Contribution Margin	$792000	$1694000	$902000
Less : Additional Development Costs	-	($125000)	($125000)
Differential Profit	$792000	$1569000	$777000

Variable Cost for CD Only = $3.00 + $3.50 + $ 3.50 = $10

Variable Cost for CD with Instructional Materials = $3.25 + $6.50 + $6.75 = $16.50

2) I suggest to sell CDs With Instructional Materials.

3a) Calculation of Differential Profits :-

Particulars	CD Only (A)(44000 units)	CD with Instructions Materials (B) (21000 units)	Incremental (A-B)
Sales Revenue (Demand * Sales Price Per unit)	$1232000	$1155000	($77000)
Less : Variable Cost (Demand * Variable Cost Per Unit)	($440000)	($346500)	$93500
Contribution Margin	$792000	$808500	$16500
Less : Additional Development Costs	-	($125000)	($125000)
Differential Profit	$792000	$683500	($108500)

Variable Cost for CD Only = $3.00 + $3.50 + $ 3.50 = $10

Variable Cost for CD with Instructional Materials = $3.25 + $6.50 + $6.75 = $16.50

3b) I suggest to Sell CDs without Instructional Materials.