Company has decided to introduce a new product. The new product can be
manufactured by either a capital-intensive method or alabor-intensive method.
The manufacturing method will not affect the quality of the product. The
estimated manufacturing costs by the two methodsare as follows.
materials $5 per
unit $5.50 per unit
labor $6 per
unit $8.00 per unit
overhead $3 per unit $4.50 per unit
manufacturing costs $2,508,000 $1,538,000
market research department has recommended an introductory unit sales price of
$30. The incremental selling expenses are estimated tobe $502,000 annually plus
$2 for each unit sold, regardless of manufacturing method.
the class divided into groups, answer the following.
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.
Determine the annual unit sales volume at which Martinez Company would be
indifferent between the two manufacturing methods.
Explain the circumstance under which Martinez should employ each of the two
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