Broadening Your Perspective
BYP18-1
DECISION MAKING ACROSS THE ORGANIZATION 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.
(c) Explain the circumstance under which Martinez should employ each of the two manufacturing
methods.
(CMA adapted)
©Property of John Wiley & Sons and may only be used by permission of the publisher

Get help from top-rated tutors in any subject.
Efficiently complete your homework and academic assignments by getting help from the experts at homeworkarchive.com