E7-5 Analyzing Special-Order Decision, E7-6 Analyzing Make-or-Buy Decision, E7-7 Analyzing Keep-or-Drop Decision, E7-8 Analyzing Sell-or Process- Further Decision The following information a s to the questions played 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 Mies both individual games as well as packaged sets. All games are in CD format, and some bile accessories such as steering wheels, electronic tablets, and hand controls. To date. MSi has developed and manufactured withe 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 significant increase in sales to younger chadren. 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 References Section Break E7-5 Analyzing Special Order Decision, E7-6 Analying Make-or-Buy Decision E7-7 Analyzing Keep or.Drop Decision E7-8 Analyzing Se For Process-Further Decision E7-6 Analyzing Make-or-Buy Decision (LO 7-2,7-4) MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co. (MLC) to produce 10,000 units of the module per year for $16.00 each. The following information pertains to MSI's production of the control modules Direct materials Direct labor Vanable manufacturing overhead Fuod manufacturing overhead Total cost per unit MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production Required: 1. Compute the dierence in cost between making and buying the control module Difference in cost 2. Should MSI buy the modules from MLC or continue to make them? Make Buy J-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $36.000 in annual profit. Recompute the difference in cost between making and buying under this scenario Difference in Cost E7-7 Analyzing keep-or-Drop Decision (LO 7-2, 7-5) MSI is considering eliminating a product from its Toddle Town Tours collection. This collection is aimed at children one to three years of age and includes lours of a hypothetical town two products, The Pet Store Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection. The Post Office Polka, have lagged the others. Several other COs are planned for this collection, but none is ready for production MSI's information related to the Toddle Town Tours collection follows: Segmented Income Statement for MSI'S Toddle Town Tours Product Lines Sales revenue Variable costs Contribution margin Less: Direct Fixed costs Segment margin Less: Common Foxed costs Net operating income loss) Pet Store Parade $140,000 59000 $ 81,000 8.400 $ 72600 7.000 R$ 65,600 Grocery Colorway $135.000 55,000 $80,000 8,500 $ 71,500 6.750 $ 64.750 Office Polka Total $37.000 $312,000 33.000 147,000 $4,000 $165,000 3,500 20,400 $ 500 $144,600 1.850 15.600 $11.350) $129.000 "Allocated based on total sales dollars. MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining foed overhead currently allocated to the POP product would be redistributed to the remaining two products Required: 1. Calculate the incremental effect on profit if the POP product is eliminated Effect on Profit 2. Should MSI drop the POP product? Yes No 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1200 of the common foued costs could be avoided if the POP product line were eliminated Efect on Proft 3-b. Should MSI drop the POP product? Yes No Hints References eBook & Resources E7-8 Analyzing Sell-or-Process-Further Decision [LO 7-2, 7-6] Mas educational products are currently sold without any supplemental materials. The company is considering the inclusion of instructional materials such as an overhead side presentation potential test questions, and classroom buletin board materials for teachers. A summary of the expected costs and revenues for MS two options follows CD Only 28.000 units $ 24.00 Instructional Materials 28.000 units $ 39.00 $ 3.25 Estimated demand Estimated sales price Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost 7.75 $ 16.25 $ 2300 $105.000 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 CD with Instructions Inc Incremental Materials 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? Add the instructional Materials Soll the CDs without instructional Materials 3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 21000 units. Complete the table given below based on Requirement and 2 data CD Only Co 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? Sell the CDs without instructional Materials Add the Instructional Materials E7-5 Analyzing Special-Order Decision, E7-6 Analyzing Make-or-Buy Decision, E7-7 Analyzing Keep-or-Drop Decision, E7-8 Analyzing Sell-or Process- Further Decision The following information a s to the questions played 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 Mies both individual games as well as packaged sets. All games are in CD format, and some bile accessories such as steering wheels, electronic tablets, and hand controls. To date. MSi has developed and manufactured withe 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 significant increase in sales to younger chadren. 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 References Section Break E7-5 Analyzing Special Order Decision, E7-6 Analying Make-or-Buy Decision E7-7 Analyzing Keep or.Drop Decision E7-8 Analyzing Se For Process-Further Decision E7-6 Analyzing Make-or-Buy Decision (LO 7-2,7-4) MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co. (MLC) to produce 10,000 units of the module per year for $16.00 each. The following information pertains to MSI's production of the control modules Direct materials Direct labor Vanable manufacturing overhead Fuod manufacturing overhead Total cost per unit MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production Required: 1. Compute the dierence in cost between making and buying the control module Difference in cost 2. Should MSI buy the modules from MLC or continue to make them? Make Buy J-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $36.000 in annual profit. Recompute the difference in cost between making and buying under this scenario Difference in Cost E7-7 Analyzing keep-or-Drop Decision (LO 7-2, 7-5) MSI is considering eliminating a product from its Toddle Town Tours collection. This collection is aimed at children one to three years of age and includes lours of a hypothetical town two products, The Pet Store Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection. The Post Office Polka, have lagged the others. Several other COs are planned for this collection, but none is ready for production MSI's information related to the Toddle Town Tours collection follows: Segmented Income Statement for MSI'S Toddle Town Tours Product Lines Sales revenue Variable costs Contribution margin Less: Direct Fixed costs Segment margin Less: Common Foxed costs Net operating income loss) Pet Store Parade $140,000 59000 $ 81,000 8.400 $ 72600 7.000 R$ 65,600 Grocery Colorway $135.000 55,000 $80,000 8,500 $ 71,500 6.750 $ 64.750 Office Polka Total $37.000 $312,000 33.000 147,000 $4,000 $165,000 3,500 20,400 $ 500 $144,600 1.850 15.600 $11.350) $129.000 "Allocated based on total sales dollars. MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining foed overhead currently allocated to the POP product would be redistributed to the remaining two products Required: 1. Calculate the incremental effect on profit if the POP product is eliminated Effect on Profit 2. Should MSI drop the POP product? Yes No 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1200 of the common foued costs could be avoided if the POP product line were eliminated Efect on Proft 3-b. Should MSI drop the POP product? Yes No Hints References eBook & Resources E7-8 Analyzing Sell-or-Process-Further Decision [LO 7-2, 7-6] Mas educational products are currently sold without any supplemental materials. The company is considering the inclusion of instructional materials such as an overhead side presentation potential test questions, and classroom buletin board materials for teachers. A summary of the expected costs and revenues for MS two options follows CD Only 28.000 units $ 24.00 Instructional Materials 28.000 units $ 39.00 $ 3.25 Estimated demand Estimated sales price Estimated cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost 7.75 $ 16.25 $ 2300 $105.000 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 CD with Instructions Inc Incremental Materials 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? Add the instructional Materials Soll the CDs without instructional Materials 3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 21000 units. Complete the table given below based on Requirement and 2 data CD Only Co 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? Sell the CDs without instructional Materials Add the Instructional Materials