MSI’s educational products currently are sold without any supplemental materials. The company is considering the inclusion of instructional materials 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 options follows:
CD OnlyCD with Instructional MaterialsEstimated demand28,000units28,000unitsEstimated sales price$ 24.00 $ 39.00 Estimated cost per unit Direct materials$ 3.25 $ 3.75 Direct labor4.50 7.50 Variable manufacturing overhead4.50 7.75 Fixed manufacturing overhead4.00 4.00 Unit manufacturing cost$ 16.25 $ 23.00 Additional development cost $ 105,000
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.
2. Should MSI add the instructional materials or sell the CDs without them?