Determine the estimated break-even point

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Reference no: EM133742

Question :

Martinez Company has decided to establish a new product. The new product will be manufactured by either a capital-intensive technique or a labor-intensive technique. The manufacturing technique will not affect the quality of the product. The evaluated 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 evaluated to be $502,000 yearly plus $2 for each unit sold, regardless of manufacturing technique.

Instructions

With the class divided into groups, answer the subsequent.

(a) Determine the estimated break-even point in annual unit sales of the new product if Martinez Company uses the:

1. Capital-intensive manufacturing technique.

2. Labor-intensive manufacturing technique.

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

Reference no: EM133742

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