Accounting

Write a paper of no more than 750 words in which you respond to the Broadening Your Perspective 18-1 activity titled “Decision Making Across the Organization” in Ch. 18 of Accounting.

 

 

 

Martinez Company has decided to introduce a new product. The new product can b 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                                    Labor

                                                                             Intensive                                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 manufaturing method.

 

a. Calculate the estimated break-even point in annual unit sales of the new product if Martinez company uses the:

                                   1. Capital – intensive manufacuring method

                                    2. Labor – intensive manufacturting 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.