The following information applies to the questions displayed below] Morning Sky,

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The following information applies to the questions displayed below] Morning Sky, Inc. (MSI), 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 and elementary school 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

Explanation / Answer

Per unit 9000 units Make Buy Make Buy Direct materials 9 81000 Direct labor 6 54000 Variable manufacturing overhead 3 27000 Purchase cost 20 180000 Total 162000 180000 Difference in cost = $18000(180000-162000) 2 Make 3 Make Buy Total cost 162000 180000 Opportunity cost 25000 Total relavent cost 187000 180000 Difference in cost = $7000(180000-187000) 3b Yes, now the recommendation is to buy

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