MSI$$s educational products currently are sold without any supplemental materials. The company is considering the inclusion of instructional materials such as an overhead slide presentation, potential test questions, and classroom bulletin board materials for teachers. A summary of the expected costs and revenues for MSI$$s two options follows:

CD Only CD with Instructional Materials

Estimated demand $27,000$ units $27,000$ units

Estimated sales price $ $23\mathrm{.}00$ $ $38\mathrm{.}00$

Estimated cost per unit

Direct materials $ $2\mathrm{.}75$ $ $3\mathrm{.}25$

Direct labor $4\mathrm{.}007\mathrm{.}00$

Variable manufacturing overhead $4\mathrm{.}007\mathrm{.}25$

Fixed manufacturing overhead $3\mathrm{.}503\mathrm{.}50$

Unit manufacturing cost $ $14\mathrm{.}25$ $ $21\mathrm{.}00$

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$.$

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

$3-$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 this scenario.

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

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 Instructional Materials Incremental

Sales Revenue

Variable Costs

Contribution Margin

Additional Development Costs

Differential Profit $($Loss$)$