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Morning Sky$,$ Incorporated $($MSI$),$ manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both IndMdual games as well as packaged sets. All games are in CD format, and some utilize accessorles such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessorles 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's educational products currently are sold without any supplemental materlals. The company is considering the inclusion of Instructional materlals 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 optlons follows:

$\backslash$table$[[,,\backslash$table$[[$CD with$],[$Instructional$],[$Materials$]]],[$Estimated demand,CD Only,$33,600$ units$],[$Estimated sales price,$33,000$ units,$],[$Estimated cost per unit,$$28\mathrm{.}00,],[$Direct materials,$$5\mathrm{.}75,6\mathrm{.}25],[$Direct labor,$7\mathrm{.}00,10\mathrm{.}00],[$Variable manufacturing overhead,$7\mathrm{.}00,10\mathrm{.}25],[$Fixed manufacturing overhead,$6\mathrm{.}50,6\mathrm{.}50],[$Unit manufacturing cost,$$26\mathrm{.}25,$$$33\mathrm{.}00$

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