Calculate the estimated break-even point

Reference no: EM13786029

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 Labor-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

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.

(b) Determine the annual unit sales volume at which Martinez Company would be indifferent between the two manufacturing methods.

Reference no: EM13786029

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