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
Fixed Manufacturing Costs \$2,508,000

Labor Intensive
Direct Materials \$5.5 per unit
Direct Labor \$8 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. The problem ask that calculated the estimated break-even point in annual unit sales of the new product if Martinez Company uses the Capital- intensive manufacturing method or the Labor- intensive manufacturing method:

a)
(1)Using the Capital-intensive method I have come up with the following calculations.
Total Fixed Cost = 2508000+502000 = 3010000
Contribution Margin per Unit = Selling Price â€“Variable Costs
= 30 -5 - 6 - 3 - 2 = \$14
Breakeven Point in Unit Sales = 3010000/14 = 215000 Units
(2)   Using the Labor-intensive method I have come up with the following calculations
Total Fixed Cost = 1538000+502000 = 2040000
Contribution Margin per Unit = Selling Price â€“Variable Costs
= 30 -5.5 - 8 - 4.5 - 2 = \$10
Breakeven Point in Unit Sales = 2040000/10 = 204000 Units

b)   Next I was ask to determine annual unit sales volume at which Martinez Company would be indifferent between the two manufacturing methods

Indifference Point = (3010000-2040000)/ (14-10) = 242500 Units

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

Both the Capital intensive and labor intensive methods have...