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Required Information Part 4 of 4 [The following information applies to the questions displayed below.] Morning Sky. Incorporated (MSI). manufactures and sells computer games. The company has several product lines based 3.33 on the age range of the target market. MSI sells both individual games as well as packaged sets. All gomes are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has points developed and manufactured all the CDs itself as well as the accessories 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 gomes 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 materials. The company is considering the inclusion of instructional materials such as on 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 options follows: CD with Instructional CD Only Materials Estimated demand 48, Bae units 48, Bae units Estimated sales price $ 34.80 $ 51.80 Estimated cost per unit Direct materials 2.08 $ 2.75 Direct labor 9.50 13 . 58 Variable manufacturing overhead 9. 58 12. 75 Fixed manufacturing overhead 18.80 18. BE Unit manufacturing cost $ 31.80 $ 39.80 Additional development cost $ 185, 080 Required: 1. Based on the given date, compute the increase or decrease in profit that would result if instructional materials were added to the CD3. 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 22,000 units. Complete the table given below based on this scenario. 3-b. Should MSI add the instructional materials or sell the CDs without them? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg 3/ Req 38 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 this scenario. CD with CD Only netructions Incremental Materials Sales Revenue 612,000 1, 122,000 5 (238,000) Variable Costs 658,000 6 858,000 (382,000) Contribution Margin 54,000 63 5 264,000 144,000 Additional Development Costs 05,000 105,000 Differential Profit (Loss) S 54,000 159,000 39,000

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