MSI has been approached by a fourth-grade teacher from Portland
about the possibility of creating a specially designed game that
would be customized for her classroom and environment. The teacher
would like an educational game to correspond to her classroom
coverage of the history of the Pacific Northwest, and the state of
Oregon in particular. MSI has not sold its products directly to
teachers or school systems in the past, but its Marketing
Department identified that possibility during a recent
meeting.
The teacher has offered to buy 1,600 copies of the CD at a price of
$5.00 each. MSI could easily modify one of its existing educational
programs about U.S. history to accommodate the request. The
modifications would cost approximately $360. A summary of the
information related to production of MSI’s current history program
follows:
Direct materials | $ | 1.19 |
Direct labor | 0.32 | |
Variable manufacturing overhead | 2.12 | |
Fixed manufacturing overhead | 1.90 | |
Total cost per unit | $ | 5.53 |
Sales price per unit | $ | 12.00 |
Required:
1. Compute the incremental profit (or loss) from accepting
the special order.
2. Should MSI accept the special order?
3. Suppose that the special order had been to purchase 1,600 copies of the program for $1.50 each. Compute the incremental profit (or loss) from accepting the special order under this scenario.
4. Suppose that MSI is operating at full capacity. To accept the special order, it would have to reduce production of the history program. Compute the special order price at which MSI would be indifferent between accepting or rejecting the special order.
I Have no idea on how to do this. I re-read the section and watched the videos. If there could be an explanation to the answer that would be great.
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