Break-even calculations
tk183
week5assignmenttemplate.xlsxSheet1
| a) Calculate the estimated break-even point (show your work) in annual unit sales of the new product if the Miller Company uses the: | ||
| Capital Intensive Method | Labor Intensive Method | |
| b) Determine annual unit sales volume (show your work) at which the Miller Company would be indifferent between the two manufacturing methods | ||
| c) Explain the circumstance under which the Miller Company should employ each of the two manufacturing methods |
The Miller 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 $7 per unit Direct Labor $4 per unit Variable Overhead $3 per unit Fixed Manufacturing Costs $3,000,000 Labor Intensive Direct Materials $6.5 per unit Direct Labor $7 per unit Variable Overhead $4.5 per unit Fixed Manufacturing Costs $1,600,000 The Miller Company’s market research department has recommended an introductory unit sales price of $30. The incremental selling expenses are estimated to be $600,000 annually plus $1 for each unit sold, regardless of manufacturing method
