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 | CD with Instructional Materials | ||||||||
Estimated demand | 29,000 | units | 29,000 | units | |||||
Estimated sales price | $ | 25.00 | $ | 40.00 | |||||
Estimated cost per unit | |||||||||
Direct materials | $ | 3.75 | $ | 4.25 | |||||
Direct labor | 5.00 | 8.00 | |||||||
Variable manufacturing overhead | 5.00 | 8.25 | |||||||
Fixed manufacturing overhead | 4.50 | 4.50 | |||||||
Unit manufacturing cost | $ | 18.25 | $ | 25.00 | |||||
Additional development cost | $ | 105,000 | |||||||
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?
Sell the CDs without Instructional Materials | |
Add the Instructional Materials |
3-a. Suppose that the higher price of the CDs with
instructional materials is expected to reduce demand to 20,000
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?
Add the Instructional Materials | |
Sell the CDs without Instructional Materials |
Answer-1)-
MSI | |||
Particulars | CD Only | CD with instructions Materials | Incremental |
(a) | (b) | (c=a-b) | |
Sales revenue | 29000 units*$25 per unit=725000 | 29000 units*$40 per unit=1160000 | 435000 |
Less:- Variable costs | 29000 units*$13.75 per unit=398750 | 29000 units*$20.50 per unit=594500 | 195750 |
Contribution margin | 326250 | 565500 | 239250 |
Less-Additional Developments costs | Nil | 105000 | 105000 |
Differential profit (loss) | 326250 | 460500 | 134250 |
The profit will be increase if instructional materials were added to the CDs.
2)- MSI should add the instructional materials due to incremental profit.
3-a)-
MSI | |||
Particulars | CD Only | CD with instructions Materials | Incremental |
(a) | (b) | (c=a-b) | |
Sales revenue | 29000 units*$25 per unit=725000 | 20000 units*$40 per unit=800000 | 75000 |
Less:- Variable costs | 29000 units*$13.75 per unit=398750 | 20000 units*$20.50 per unit=410000 | 11250 |
Contribution margin | 326250 | 390000 | 63750 |
Less-Additional Developments costs | Nil | 105000 | 105000 |
Differential profit (loss) | 326250 | 285000 | -41250 |
3-b)- MSI should sell the CDs without them due to incremental loss.
MSI’s educational products are currently sold without any supplemental materials. The company is considering the inclusion...
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 29,000 units $ 25.00 CD with Instructional Materials 29,000 units $ 40.00 Estimated demand Estimated sales price Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing...
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 36,000 units $ 30.00 CD with Instructional Materials 36,000 units $ 47.00 $ 5.25 Estimated demand Estimated sales price Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead...
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 31,000 units $ 27.00 CD with Instructional Materials 31,000 units $42.00 Estimated demand Estimated sales price Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead...
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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 25.000 units $ 21.00 CD with Instructional Materials 25,000 units $ 36.00 Estimated demand Estimated sales price Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing...
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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...
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