Calculate the estimated break-even point in annual unit sales of the
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.
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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.
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(a) |
Calculate the estimated break-even point in annual unit sales of the new product if Martinez Company uses the:
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(b) |
Determine the annual unit sales volume at which Martinez Company would be indifferent between the two manufacturing methods. |
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(c) |
Explain the circumstance under which Martinez should employ each of the two manufacturing methods. (CMA adapted) |
