MSI’s educationalproducts are currently sold without any supplemental materials. Thecompany is considering the inclusion of instructional materialssuch as an overhead slide presentation, potential test questions,and classroom bulletin board materials for teachers. A summary ofthe expected costs and revenues for MSI’s two optionsfollows:
| CDOnly | CDwith Instructional Materials |
| Estimateddemand | | | 41,000 | units | | | 41,000 | units | |
| Estimated salesprice | | $ | 25.00 | | | $ | 52.00 | | |
| Estimated costper unit | | | | | | | | | |
| Directmaterials | | $ | 1.50 | | | $ | 1.75 | | |
| Directlabor | | | 2.00 | | | | 5.00 | | |
| Variablemanufacturing overhead | | | 2.00 | | | | 5.25 | | |
| Fixedmanufacturing overhead | | | 2.00 | | | | 2.00 | | |
| Unitmanufacturing cost | | $ | 7.50 | | | $ | 14.00 | | |
| Additionaldevelopment cost | | | | | | $ | 105,000 | | |
|
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 theInstructional Materials |
| Sell the CDswithout Instructional Materials |
3-a. Suppose that the higher price of the CDs withinstructional materials is expected to reduce demand to 21,000units. 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 CDswithout Instructional Materials |
| Add theInstructional Materials |
