MSIs 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 MSIs two options follows:

CD OnlyCD with Instructional MaterialsEstimated demand25,000units25,000unitsEstimated sales price$ 21.00 $ 36.00 Estimated cost per unit Direct materials$ 1.75 $ 2.25 Direct labor3.00 6.00 Variable manufacturing overhead3.00 6.25 Fixed manufacturing overhead2.50 2.50 Unit manufacturing cost$ 10.25 $ 17.00 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?