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
Show all supporting calculations for part a
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.
