DECISION MAKING ACROSS THE ORGANIZATION

profilePROF Kay
 (Not rated)
 (Not rated)
Chat

 

DECISION MAKING ACROSS THE ORGANIZAT

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-

Intensive   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.

(c) Explain the circumstance under which Martinez should employ each of the two manufacturing methods.

Online
 (CMA adapted)

 

 

    • 10 years ago
    SOLUTION (DECISION MAKING ACROSS THE ORGANIZATION - Martinez Company)
    NOT RATED

    Purchase the answer to view it

    blurred-text
    • attachment
      martinez.doc