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Category > Management Posted 01 Jun 2017 My Price 13.00

DECISION MAKING ACROSS THE ORGANIZATION

DECISION MAKING ACROSS THE ORGANIZATION

BYP 18-1 Martinez Company has decided to introduce a new product. The new product can be manufactured in 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 marketing 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:

 

(a) Calculate the estimated breakeven 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 circumstances under which Martinez should employ each of the two manufacturing methods.

Answers

Maurice Tutor
(5)
Status NEW Posted 01 Jun 2017 09:06 PM My Price 13.00

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