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 manufactu

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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:

Capital-Intensive

Direct Materials 5$ per unit

Direct Labor 6$ per unit

Variable Overhead $3 per unit

Fixed Manufacturing Costs $2,508,000



Labor Intensive

Direct Materials 5.5$ per unit

Direct Labor 8$ per unit

Variable Overhead $4.5 per unit

Fixed Manufacturing Costs $1,538,000



Martinez 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.

    • 9 years ago
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