MSI\'s educational products are curently sold wtthout any supplemental materials

Question

MSI's educational products are curently sold wtthout any supplemental materials. The company is considering the Inclusion of Instructional materials such as an overhead slide presentation, potential est questions, and classroom builetin board matenals for teachers. A summary of th expected costs and revenues for MSI's twa options folows CD with Co Only 36.000 units Estimatad damand Estimated sales price Esimaled cvel per uni. ,000 unlts S 47.00 $ 30.00 Direct meterials Diract labor Variable manufacturing averhead Fived manufscturing overhead 5 525 11.50 T.50 10.75 Unit manufacturing cast Addilional development cost 2825 3800 5105,000 Required: 1. Based an the given ata, Compule the increase ar decrease in prafit that would resut if instructional materials were added to the CDs CD Only Galas Reanue Varisble Costs Contribution Margin Additional Davalopment Coats DilTerential Piolil (Loss) 2. Should MSI add the instruclioal malerials or se he COs wilhoul then Add thc Insructional Materials Sall the CDa without Inctructianal Matarials 3-a. Suppuse that the higher price of the CDs wth instructional iateriels is expecled to reuce demand to 18,000 units. Complete the teble givn below based on Reyuiremerit 1 erid 2 dals. CD Only Marerials alas RaanA arlable Costs Contribution Margin Additional Development Coets Differential Profit (Los:)

Explanation / Answer

SOLUTION

1.

2. MSI should add instructional materials.

3.

CD only ($) CD with instructions materials ($) Incremental ($) Sales Revenue (36,000*$30), (36,000*47) 1,080,000 1,692,000 612,000 Variable Costs (36,000*$20.25), (36,000*30) 729,000 1,080,000 351,000 Contribution Margin 351,000 612,000 261,000 Additional Development Costs 0 105,000 (105,000) Differential Profit 351,000 507,000 156,000

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