Decision Making Across the Organization

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DECISION MAKING ACROSS THE ORGANIZATION BYP18-1 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 Labor 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 (b) Determine the annual unit sales volume at which Martinez Company would be indifferent between The two manufacturing methods.

DECISION MAKING ACROSS THE ORGANIZATION

BYP18-1 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 Labor                                                        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

(b) Determine the annual unit sales volume at which Martinez Company would be indifferent between

The two manufacturing methods.