Creative Ideas 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.
|Direct materials||$6||per unit||$6.50||per unit|
|Direct labor||$7||per unit||$9.00||per unit|
|Variable overhead||$4||per unit||$5.50||per unit|
|Fixed manufacturing costs||$2,978,000||$1,829,000|
Creative Ideas’ market research department has recommended an introductory unit sales price of $38. The incremental selling expenses are estimated to be $592,000 annually plus $2 for each unit sold, regardless of manufacturing method.
With the class divided into groups, answer the following.
Calculate the estimated break-even point in annual unit sales of the new product if Creative Ideas Company uses the: (Round answers to 0 decimal places, e.g. 5,275.)
|(1)||Capital-intensive manufacturing method.|
|(2)||Labor-intensive manufacturing method.|
|Break-even point in units||
Determine the annual unit sales volume at which Creative Ideas Company would be indifferent between the two manufacturing methods. (Round answer to 0 decimal places, e.g. 5,275.)
|Annual unit sales volume||