DECISION MAKING ACROSS THE ORGANIZATION BYP18-1 Martinez Company has decided to
ID: 2507774 • Letter: D
Question
DECISION MAKING ACROSS THE ORGANIZATION
BYP18-1 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- Labor-
Intensive 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.
Instructions
Write a paper of no more than 750 words in which you respond to the Broadening Your Perspective 18-1 activity titled "Decision Making Across the Organization" in Ch. 18 of Accounting.
Explanation / Answer
L
Capital
Unit Direct materials $5 per unit
Direct labor $6 per unit
Variable overhead $3 per unit
Total varIable cost per unitst =5 +6+3+2=16
cont ibution per unit= 30-16=14
Fixed manufacturing costs $2,508,000
Fixed sellingcosts $502 000
Total fixed cost= 3 010 000
Break even points in unitsa = fixed cost/ contribution per unit= 3 010 000 /14=215000
Break even points in sales= 215000x30=6 450 000
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Direct materials $5.50 per unit
Direct labor $8.00 per unit
Variable overhead $ $4.50 per unit
Fixed manufacturing costs $1,538,000
Total varIable cost per unitst =5.5 +8+4.5+2=20
ccont ibution per unit= 30-20=10
Fixed manufacturing costs 1538000
Fixed sellingcosts $502 000
Total fixed cost= 2 040 000
Break even points in unitsa = fixed cost/ contribution per unit= 2040 000 /20=
Break even points in sales= 102000x30=3060000
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