80.2K

Verified Solution

Link Copied!

MSI’s educational products are currently sold without anysupplemental materials. The company is considering the inclusion ofinstructional materials such as an overhead slide presentation,potential test questions, and classroom bulletin board materialsfor teachers. A summary of the expected costs and revenues forMSI’s two options follows:

	CD Only				CD with Instructional Materials
Estimated demand			29,000	units			29,000	units
Estimated sales price		$	25.00			$	40.00
Estimated cost per unit
Direct materials		$	3.75			$	4.25
Direct labor			5.00				8.00
Variable manufacturing overhead			5.00				8.25
Fixed manufacturing overhead			4.50				4.50
Unit manufacturing cost		$	18.25			$	25.00
Additional development cost						$	105,000

  
Required:
1. Based on the given data, Compute the increase ordecrease in profit that would result if instructional materialswere added to the CDs.



2. Should MSI add the instructional materials orsell the CDs without them?

	Add the Instructional Materials
	Sell the CDs without Instructional Materials

  
3-a. Suppose that the higher price of the CDs withinstructional materials is expected to reduce demand to 20,000units. Complete the table given below based on Requirement 1 and 2data.

  

3-b. Should MSI add the instructional materials orsell the CDs without them?

	Add the Instructional Materials
	Sell the CDs without Instructional Materials