InstructionalCD Only42,000 units26.00Materials42,000 units$ 53.00Estimated demandEstimated sales priceEstimated cost per unit$2.502.50$5.505.752.50Direct materials2.002.25Direct laborVariable manufacturing overheadFixed manufacturing overheadUnit manufacturing costAdditional development cost2.50$$ 16.00$125,0009.50Required:1. Based on the given data, Compute the increase or decrease in profit that would result if instructional materials were added to the CDsCD with InstructionsCD OnlyIncrementalMaterialsSales RevenueVariable CostsContribution MarginAdditional Development CostsDifferential Profit (Loss)2. Should MSI add the instructional materials or sell the CDs without them?Sell the CDs without Instructional MaterialsAdd the Instructional Materials3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 22,000 units. Complete the table given below based on Requirement 1 and 2 data.CD with InstructionsMaterialsCD OnlyIncrementalSales RevenueVariable CostsContribution MarginAdditional Development CostsDifferential Profit (Loss)

Question
Asked Oct 22, 2019
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How would i fill out the two tables?

Instructional
CD Only
42,000 units
26.00
Materials
42,000 units
$ 53.00
Estimated demand
Estimated sales price
Estimated cost per unit
$
2.50
2.50
$
5.50
5.75
2.50
Direct materials
2.00
2.25
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Unit manufacturing cost
Additional development cost
2.50
$
$ 16.00
$125,000
9.50
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
CD with Instructions
CD Only
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?
Sell the CDs without Instructional Materials
Add the Instructional Materials
3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 22,000 units. Complete the table given below based on Requirement 1 and 2 data.
CD with Instructions
Materials
CD Only
Incremental
Sales Revenue
Variable Costs
Contribution Margin
Additional Development Costs
Differential Profit (Loss)
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Instructional CD Only 42,000 units 26.00 Materials 42,000 units $ 53.00 Estimated demand Estimated sales price Estimated cost per unit $ 2.50 2.50 $ 5.50 5.75 2.50 Direct materials 2.00 2.25 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost 2.50 $ $ 16.00 $125,000 9.50 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 CD with Instructions CD Only 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? Sell the CDs without Instructional Materials Add the Instructional Materials 3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 22,000 units. Complete the table given below based on Requirement 1 and 2 data. CD with Instructions Materials CD Only Incremental Sales Revenue Variable Costs Contribution Margin Additional Development Costs Differential Profit (Loss)

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Expert Answer

Step 1

In decision analysis, fixed costs are considered sunk cost and hence they are ignored for decision making process.

Step 2

1. The required table showing increase or decrease in profits if CD instruction manual is added is as follows

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Increased (CD with instruction manuals- CD only) CD with instructional Explanation Sales Revenue-Demand Sales price CD only (42000 28), CD with Instruction (42000*53) Demand Variable cost per unit CD only (42,000 7), with instruction manual (42000 13.5) Variable cost per unit-Direct materials+direct labor +variable maufacturing CD only (2+2.50+2.50); with instruction manual (2.25+5.50+5.75) CD only materials Sales Revenue 2226000 1050000 1176000 Variable cost 294000 567000 273000 Contribution margin (sales- variable cost) Additional development cost Differential profit or loss 882000 777000 1659000 -125,000 -125000 (contribution margin-additional development cost) 1534000 882000 652000

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Step 3

2. Since the profit has increased by $652,000 , t...

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