This question has been answered by sverma1 on Sep 18, 2013. View Solution
Whitfield posted a question Sep 16, 2013 at 2:01pm
BYP18-1 DECISION MAKING ACROSS THE ORGANIZATION
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.
Instructions
With the class divided into groups, answer the following.
(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.




(b) Determine the annual unit sales volume at which Martinez Company would be indifferent between the two manufacturing methods.
(c) Explain the circumstance under which Martinez should employ each of the two manufacturing methods.
(CMA adapted)

Additional: Please show graph in excel with calculations
answered the question Sep 18, 2013 at 12:56pm
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BYP18-1 DECISION MAKING ACROSS THE ORGANIZATION
Martinez Company has decided to introduce a new product. The new product can be manufactured by either a capital-intensive method or a...