Solved by verified expert :The
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
Capital Intensive Labor Intensive
Direct Materials $5.00
per unit Direct Materials .50 per unit
Direct Labor
$6.00 per unit
Direct Labor
$8.00 per unit
Variable Overhead $3.00
per unit Variable Overhead $4.50 per unit
Fixed Manufacturing Costs$2,508,000 Fixed Manufacturing
Costs $1,538,000
Martinez 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
method : (2) Labor-intensive method.
b) Determine 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
