Question

MSI’s educational products are currently 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 Only CD with Instructional MaterialsEstimated demand 28,000 units 28,000 unitsEstimated sales price $ 24.00 $ 39.00Estimated cost per unitDirect materials $ 3.25 $ 3.75Direct labor 4.50 7.50Variable manufacturing overhead 4.50 7.75Fixed manufacturing overhead 4.00 4.00Unit manufacturing cost $ 16.25 $ 23.00 MSI’s educational products are currently 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: 28000

Answer 1

Step-by-step explanation:

There are 2 ways in which this question can be solved:

Method 1 find all the unit cost of production add them together and multiply by the unit to be produced.

Method 2: break down each component of production and multily each by the unit to be produced.

However the method to be used depends on the nature of the question if it’s a multiple choice question Method A is faster and should be applied while if it’s a theory question Method 2 is to be applied since marks would be awarded at each point of calculation.

Note that Total Revenue is calculated the same way Price * Quantity

From the attachment:

This question let’s refer to product CD as A and CD with instructional material as B

Cost have been separated and reported in a tabular format

Step 1: Find Total Revenue first

Step 2: Multiply each cost per unit for both products by the quantity to be produced

Step 3: Fixed cost per unit is to be multiplied by no of units to be produced

Step 4: Sum all costs together

Step 5: deduct from Total Revenue to arrive at Profit

From the solution, Total Cost for CD is $455,000 while Total Revenue is $672,000

CD Instrumental Material Total cost $644,000 while Total revenue is $1,092,000

For the purpose of decision making the product with the highest revenue is to be produced which is CD Instrumental with Material which generates a revenue of $448,000.