Martinez Company has decided to introduce a new product. The new product can be

Question

Martinez Company has decided to introduce a new product. The new product can be manufactured by either a capital-intensive method or a labor-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows. Capital-Intensive Labor-Intensive Direct materials $5 per unit $5.50 per unit Direct labor $6 per unit $8.00 per unit Variable overhead $3 per unit $4.50 per unit Fixed manufacturing costs $2,508,000 $1,538,000 Martinez's market research department has recommended an introductory unit sales price of $30. The incremental selling expenses are estimated to be $502,000 annually plus $2 for each unit sold, regardless of manufacturing method. (a) Calculate the estimated break-even point in annual unit sales of the new product if Martinez Company uses the: 1. Capital-intensive manufacturing method. 2. Labor-intensive manufacturing method.

Explanation / Answer

capital labor direct material 5 5.5 direct labor 6 8 variable overhead 3 4.5 selling expenses 2 2 total variable cost 16 20 SP 30 30 contribution 14 10 fixed overhead 3010000 2040000 BEP in units 215000 204000

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.