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 Only CD with
Instructional Materials
Estimated demand 34,000 units 34,000 units
Estimated sales price $26.00 $45.00
Estimated cost per unit:
Direct materials $4.25 $6.75
Direct labor 6.50 10.50
Variable manufacturing overhead 6.50 9.75
Fixed manufacturing overhead 7.00 7.00
Unit manufacturing cost $24.25 $34.00
Additional development cost $105,000
Required:
a. Based on the given data, compute the increase or decrease in profit that would result if instructional materials were added to the CDs.
b. Should MSI add the instructional materials or sell the CDs without them?
c. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 21,000 units.
d. Should MSI add the instructional materials or sell the CDs without them?
Answers: 2
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MSI’s educational products are currently sold without any supplemental materials. The company is con...
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