Reference no: EM131815472
Creative Ideas 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 |
$6 |
per unit |
$6.00 |
per unit |
| Direct labor |
$7 |
per unit |
$9.00 |
per unit |
| Variable overhead |
$3 |
per unit |
$5.00 |
per unit |
| Fixed manufacturing costs |
$2,827,000 |
$1,736,000 |
Creative Ideas' market research department has recommended an introductory unit sales price of $36. The incremental selling expenses are estimated to be $562,000 annually plus $2 for each unit sold, regardless of manufacturing method.
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 Creative Ideas Company uses the:(Round answers to 0 decimal places, e.g. 5,275.)
(1) Capital-intensive manufacturing method.
(2) Labor-intensive manufacturing method.
(b) Determine the annual unit sales volume at which Creative Ideas Company would be indifferent between the two manufacturing methods.(Round answer to 0 decimal places, e.g. 5,275.)