E78 Analyzing SellorProcessFurther Decision LO 72 76 MSIs ed

E7.8 Analyzing Sell-or-Process-Further Decision [LO 7-2, 7-6 MSI\'s educatonal products are currenlly sold without any supplemental materia\'s. The company is considering the inclusion of instructional malerials such as an overhead slide presentation, potential test questions, and classroom bulletin board materials for leachers. A summary of the expecled ecsts and revenues for MSI\'s two options follows CD with CD Only 42.000 unts Materisls 42,000 units Estimated demand Esimated sales price Esimated cost per urit S 28.00 $ 63.00 Direct materials Direct labor variable manufacturing overhead Fixed manufacturing overhead S 2.00 2.50 2.50 $ 2.25 5.50 5.75 Unit manufacturing cost Additional development cost 9.50 16.00 $125,000 Required: 1. Based on the given data, Compute the increase or decrease in profit that would result instructional materials were added to the CDs. CD Only Sales Revenue Variable Coete Contribution Margin Additional Development Coets Differental Proft (Loss) 2. Should MSI add the instructional malerials or sell the CDs without them? Add the Instructional Materials O Sel the CDa without Instructonal Materials 3a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 22.000 units. Complete the t?le given below based on Requirement 1 and 2 data. CD Only Materlals Sales Revenue ariable Costs Contribution Margin Additional Development Costs Oifferental Proft (Loss)

Solution

Req 1: CD only CD with Incremental Manual Sales revenue 1092000 2226000 1134000 variable cost 294000 567000 -273000 Contribution margin 798000 1659000 961000 Additional Development cost 125000 -125000 Differential Profit (loss) 798000 1534000 836000 MSI should add Instruction Manual Req 3: CD only CD with Incremental Manual Sales revenue 1092000 1166000 74000 variable cost 294000 297000 -3000 Contribution margin 798000 869000 71000 Additional Development cost 125000 -125000 Differential Profit (loss) 798000 744000 -54000 MSI should sell CD without instruction Manual