Decision making across the organization

Reference no: EM13742434

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.

Reference no: EM13742434

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