# Capital-Intensive , accounting homework help

18-1

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.

 Capital-Intensive Labor-Intensive 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.

(a)

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.
 Capital-Intensive Labor-Intensive Break-even point in units

(b)

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 units