Reference no: EM131964311
Question: 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 $2,776,000 $1,705,000 Creative Ideas' market research department has recommended an introductory unit sales price of $35. The incremental selling expenses are estimated to be $552,000 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. Capital-Intensive Labor-Intensive Break-even point in units
(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.) Annual unit sales volume units.
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