MSI\'s educational products are currently sold without any supplemental material
ID: 2555770 • Letter: M
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 CD Only 37,000 units Materials 37,000 units Estimated demand Estimated sales price Estimated cost per unit 31.00 $ 48.00 $ 5.75 8.00 8.00 8.50 S 30.25 $ 8.25 12.00 11.25 8.50 40.00 $105,000 Direct materials Direct labor Fixed manufacturing overhead Unit manufacturing cost Additional t cost Required 1. Based on the given data, Compute the increase or decrease in profit that would result if instructional materials were added to the CDs. CD Only CD with ions Materials Sales Revenue Variable Costs Contribution Margin Additional Development Costs Oifferential Profit (Loss)Explanation / Answer
Answer
CD Only
CD with Instruction materials
Calculation
Amount ($)
Calculation
Amount ($)
Incremental
Sales Revenue
[37000x31]
1147000
[37000x48]
1776000
$629000
Variable costs
[37000 x (5.75+8+8)]
804750
[37000 x (8.25+12+11.25)]
1165500
$360750
Contribution margin
[1147000-804750]
342250
[1776000-1165500]
610500
$268250
Additional Development costs
None will occur
0
[given]
105000
$105000
Differential Profit (Loss)
$342,250
$505,500
$163,250
CD Only
CD with Instruction materials
Calculation
Amount ($)
Calculation
Amount ($)
Incremental
Sales Revenue
[37000x31]
1147000
[19000x48]
912000
-235000
Variable costs
[37000 x (5.75+8+8)]
804750
[19000 x (8.25+12+11.25)]
598500
-206250
Contribution margin
[1147000-804750]
342250
[912000-598500]
313500
-28750
Additional Development costs
None will occur
0
[given]
105000
105000
Differential Profit (Loss)
$342,250
$208,500
$(133,750)
CD Only
CD with Instruction materials
Calculation
Amount ($)
Calculation
Amount ($)
Incremental
Sales Revenue
[37000x31]
1147000
[37000x48]
1776000
$629000
Variable costs
[37000 x (5.75+8+8)]
804750
[37000 x (8.25+12+11.25)]
1165500
$360750
Contribution margin
[1147000-804750]
342250
[1776000-1165500]
610500
$268250
Additional Development costs
None will occur
0
[given]
105000
$105000
Differential Profit (Loss)
$342,250
$505,500
$163,250
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