MSI\'s educational products are currently sold without any supplemental material

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: CD with Instructional CD Only 30,000 units Materials 30,000 units Estimated demand Estimated sales price Estimated cost per unit $ 26.00 $ 41.00 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $ 4.25 5.50 5.50 5.00 $ 4.75 8.50 8.75 5.00 20.25 27.00 $105,000 Unit manufacturing cost Additional development cost 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 Incremental Materials Sales Revenue Varable Costs Contribution Margin Additional Development Costs Differential Profit (Loss) 2. Should MSI add the instructional materials or sell the CDs without them? Add the Instructional Materials Sell the CDs without Instructional Materials

Explanation / Answer

CD only C

CD only C

ans 1

CD only C

CD with instruction material D Incremental D-C Sales revenue 780000 1230000 450000 30000*26 30000*41 Variable cost 457500 660000 -202500 30000*15.25 30000*22 Contribution margin A 322500 570000 247500 Additional development cost B 0 105000 -105000 Differential profit/(loss) A-B 322500 465000 142500 working variable cost per unit CD only (20.25-5) 15.25 CD with instruction (27-5) 22 ans 2 Add the instructuin material as it incraeses profit by $142500 ans 3

CD only C

CD with instruction material D Incremental D-C Sales revenue 780000 861000 81000 30000*26 21000*41 Variable cost 457500 462000 -4500 30000*15.25 21000*22 Contribution margin 322500 399000 76500 Additional development cost 0 105000 -105000 Differential profit/(loss) 322500 294000 -28500 3b Sell the CDs without instruction material If any doubt please comment

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