Check Your 061 points MSI has been approached by a fourth-grade teacher from Por
ID: 2437854 • Letter: C
Question
Check Your 061 points MSI has been approached by a fourth-grade teacher from Portland about the possibility of creating a products directly to eachers or school systems in the past, but its Marketing Department identfed thr The teadher has offered to buy 2,900 copies of the CD at a price of specialily designed game that would be oustomined for her classroom of the history of the Pacfic Northwest and the state of Oregon in particular. MSI has not sold ts and environment possbility during a necent meetiryg 2 6.00 each MSI could easily modity one of ts exising educatonal programs about U S. halory to accommodte The modificaions woukt cost approximately $400 A summary of the information related to production of MSIs ourent history progiam Direot abor Fixed manufacturing ovehead 1. Compute the incremental prolt for loss) from accepting the special onder 2. Shouid MSi accept the special order? nrol option command commond optionExplanation / Answer
Required - 1
Offer Price = 6 per Unit and Variable cost of making = 3.64, hence we have contribution = 6 - 3.64 = 2.36
Total contribution = 2900 * 2.36 = 6844
Incremental cost = 400
Increase in profit due to acceptance of offer = 6844 - 400 = 6444
Required - 2
Yes
As the current profit is increasing by 6444, the offer can be accepted
Required - 3
When the price = 5.50 instead of 6 as earlier used for computations, there is a loss of 2900 * 0.50 = 1450. Hence our incremental profit will decrease by this amount. = 6444 - 1450 = 4994
Required - 4
When we are working at full capacity ( i.e there is no spare capacity) current market price becomes the minimum acceptable price for manufacturer. Otherwise is loss of contribution from current sales.Any price above 12 make the special offer attractive and any price lower than 12 make it unattractive. Hence at a price of 12 the company is indifferent.
Profit (or Loss) Increase by 6444