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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

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 or decrease in profit that would result if instructional materials were added to the CDs.

CD Only CD with Instructions Materials Incremental
Sales Revenue
Variable Costs
Contribution Margin
Additional Development Costs
Differential Profit (Loss)

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

a. Add the Instructional Materials

b. Sell the CDs without Instructional Materials

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

CD Only CD with Instructions Materials Incremental
Sales Revenue
Variable Costs
Contribution Margin
Additional Development Costs
Differential Profit (Loss)

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

a. Add the Instructional Materials

b. Sell the CDs without Instructional Materials

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