MSI’s educational products are currently sold without anysupplemental materials. The company is considering the inclusion ofinstructional materials such as an overhead slide presentation,potential test questions, and classroom bulletin board materialsfor teachers. A summary of the expected costs and revenues forMSI’s two options follows:
| CD Only | CD with Instructional Materials |
| Estimated demand | | | 38,000 | units | | | 38,000 | units | |
| Estimated sales price | | $ | 33.00 | | | $ | 49.00 | | |
| Estimated cost per unit | | | | | | | | | |
| Direct materials | | $ | 6.25 | | | $ | 8.75 | | |
| Direct labor | | | 8.50 | | | | 12.50 | | |
| Variable manufacturing overhead | | | 8.50 | | | | 11.75 | | |
| Fixed manufacturing overhead | | | 9.00 | | | | 9.00 | | |
| Unit manufacturing cost | | $ | 32.25 | | | $ | 42.00 | | |
| Additional development cost | | | | | | $ | 105,000 | | |
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Required:
1. Based on the given data, Compute the increase ordecrease in profit that would result if instructional materialswere added to the CDs.
2. Should MSI add the instructional materials orsell the CDs without them?
| Add the Instructional Materials |
| Sell the CDs without Instructional Materials |
3-a. Suppose that the higher price of the CDs withinstructional materials is expected to reduce demand to 20,000units. Complete the table given below based on Requirement 1 and 2data.
3-b. Should MSI add the instructional materials orsell the CDs without them?
| Sell the CDs without Instructional Materials |
| Add the Instructional Materials |
