MSI has been approached by a fourth-grade teacher from Portland about the possibility of creating a specially designed game that would be customized for her classroom and environment. The teacher would like an educational game to correspond to her classroom coverage of the history of the Pacific Northwest, and the state of Oregon in particular. MSI has not sold its products directly to teachers or school systems in the past, but its Marketing Department identified that possibility during a recent meeting.

The teacher has offered to buy 1,100 copies of the CD at a price of $5.00 each. MSI could easily modify one of its existing educational programs about U.S. history to accommodate the request. The modifications would cost approximately $500. A summary of the information related to production of MSIs current history program follows:

Direct materials $1.24

Direct labor $0.33

Variable manufacturing overhead $2.12

Fixed manufacturing overhead $2.00

Total cost per unit $5.69

Sales price per unit $13.00

Compute the incremental profit (or loss) from accepting the special order.

Suppose that the special order had been to purchase 1,100 copies of the program for $4.50 each. Compute the incremental profit (or loss) from accepting the special order under this scenario.

Suppose that MSI is operating at full capacity. To accept the special order, it would have to reduce production of the history program. Compute the special order price at which MSI would be indifferent between accepting or rejecting the special order. (Round your answer to 2 decimal places.)

2. 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 25,000 units of the module per year for $22.00 each. The following information pertains to MSIs production of the control modules:

Direct materials $13

Direct labor $6

Variable manufacturing overhead $8

Fixed manufacturing overhead $2

Total cost per unit $29

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.

Compute the difference in cost between making and buying the control module.

Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $41,000 in annual profit. Recompute the difference in cost between making and buying under this scenario.

3. Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine.

Lost Mine has offered to buy 2,900 of the US umbrellas at a price of $27 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella:

Direct materials $12

Direct labor $6

Variable manufacturing overhead $8

Fixed manufacturing overhead $2.50

Total cost $28.50

Regular sales price $35

Compute the incremental profit (or loss) from accepting the special order.

Suppose that the special order had been to purchase 3,400 umbrellas for $25.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario.

Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order.

4. Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 10,000 units per year for $7.00 each. Mohave has the following information about the cost of producing tote bags:

Direct materials $3

Direct labor $2

Variable manufacturing overhead $1

Fixed manufacturing overhead $2.50

Total cost per unit $8.50

Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 75 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags.

Compute the difference in cost between making and buying the umbrella tote bag.

Suppose that the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $6,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag.

5. Blossom, Inc., is a small company that manufactures three versions of patio tables. Unit information for its products follows:

	Table A	Table B	Table C
Sales price	$45	$49	$63
Direct materials	$8	$9	$10
Direct labor	$1	$3	$7
Variable manufacturing overhead	$3	$3	$3
Fixed manufacturing overhead	$4	$4	$4
Required number of labor hours	.5	.5	1
Required number of machine hours	4	2.50	2

Blossom has determined that it can sell a limited number of each table in the upcoming year. Expected demand for each model follows:

Table A: 50,000 units

Table B: 30,000 units

Table C: 20,000 units

Suppose that direct labor hours has been identified as the bottleneck resource. Determine how Blossom should prioritize production by rank ordering the products from 1 to 3.

If Blossom has only 45,000 direct labor hours available, calculate the number of units of each table that Blossom should produce to maximize its profit.(Enter the products in the sequence of their preferences; the product with first preference should be entered first.)

Suppose that the number of machine hours has been identified as the most constrained resource. Determine how Blossom should prioritize production by rank ordering the products from 1 to 3.

If Blossom has only 237,000 machine hours available, calculate the number of units of each table that Blossom should produce to maximize its profit.(Enter the products in the sequence of their preferences; the product with first preference should be entered first.)