Broadening your perspective 18-1 “Decision Making Across Your Organization”
BYP 18-1 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.
- Determine the annual unit sales volume at which Martinez Company would be indifferent between the two manufacturing methods.
In not more than 170 words answer the above question in (a)