Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the 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 a significant increase in sales to younger children. 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. 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 24,000 units of the module per year for $27.00 each. The following Information pertains to MSI's production of the control modules: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $13 6 7 $33 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 information Required: 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules from MLC or continue to make them? 3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $30,000 in annual profit. Recompute the difference in cost between making and buying under this scenario. 3-b. Does this change your recommendation to MSI? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 38 Compute the difference in cost between making and buying the control module. Diferance in Cost Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 38 Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $30,000 in annual profit. Recompute the difference in cost between making and buying under this scenario. Difference in Cost MSI is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children one to three years of age and includes "tours" 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 CDs are planned for this collection, but none is ready for production. MSI's information related to the ToddleTown Tours collection follows: Segmented Income Statement for MSI's ToddleTown Tours Product Lines Sales revenue Variable costs Contribution margin Less: Direct Fixed costs Segment margin Less Common fixed costs Net operating income (loss) "Allocated based on total sales revenue. Pet Store Parade Grocery Getaway Post Office Polka Total $150,000 $145,000 $39,000 $334,000 59,000 35,000 152,000 $86,000 $ 4,000 3,700 $177,000 21,600 $ 100 $155,400 1,950 16,700 $1,650) $135,700 63,000 $87,000 8,500 $ 78,200 7,500 $ 70,700 9,100 $76,900 7,250 $ 69,650 MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining fixed 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. 2. Should MSI drop the POP product? 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could 2. Should MSI drop the POP product? 3-a. Calculate the Incremental effect on profit If the POP product is eliminated. Suppose that $1,200 of the common fixed costs co be avoided if the POP product line were eliminated. 3-b. Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 38 Calculate the Incremental effect on profit if the POP product is eliminated. Effect on Profit Decrease Reg Req 2 > Jet 19 Ciminated, suppose that $1,200 of the common fixed costs cou be avoided if the POP product line were eliminated. 3-b. Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 34 Req 38 Calculate the Incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could be avoided if the POP product line were eliminated. Effect on Profit Increase