ACC/561- Creative Ideas Company has decided to introduce a new product.

Subject: Business    / Accounting
Question
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.
Your answer is partially correct. Try again.

Capital-Intensive    Labor-Intensive
Direct materials    $4    per unit    $4.50    per unit
Direct labor    $5    per unit    $7.00    per unit
Variable overhead    $3    per unit    $4.00    per unit
Fixed manufacturing costs    $2,171,000    $1,333,000

Creative Ideas’ market research department has recommended an introductory unit sales price of $28. The incremental selling expenses are estimated to be $432,000 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