farl File Edit View History Bookmarks Window Help ezto.mheducation.com The follo
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farl File Edit View History Bookmarks Window Help ezto.mheducation.com The following information applies to the questions displeyed below) Morning Sky, Inc. (MS), 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 a 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 and elementary school Required information value 1.00 points MSI has been approached by a fourth-grade teacher from Portliand 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 1,700 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 $500. 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 s 1.16 0.43 2.17 1.80 5.56 Total cost per unit Sales price per unit Required 1. Compute the incremental profit (or loss) from accepting the special order ) ?Explanation / Answer
1 Per unit Total 1700 copies Incremental revenue 5 8500 Incremental costs: Direct materials 1.16 1972 Direct labor 0.43 731 Variable manufacturing overhead 2.17 3689 Modification cost 500 Total Incremental costs 6892 Incremental net operating income(loss) 1608 Profit(loss) increases by $1608 2 Yes 3 Per unit Total 1700 copies Incremental revenue 4.5 7650 Incremental costs: Direct materials 1.16 1972 Direct labor 0.43 731 Variable manufacturing overhead 2.17 3689 Modification cost 500 Total Incremental costs 6892 Incremental net operating income(loss) 758 Profit(loss) increases by $758 4 Special order price = 12+(500/1700)= $12.29
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