Zodiac Company has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system or a labor-intensive production system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows:
|
Labor-Intensive
Production System |
Computer-Assisted
Manufacturing System |
| Direct material |
|
$ 9.70 |
|
$ 8.80 |
| Direct labor |
.8DLH @ $20.00 |
16.00 |
.5DLH @ $24.50 |
12.30 |
| Variable overhead |
.8DLH @ $15.50 |
12.40 |
.5DLH @ $15.50 |
7.75 |
| Fixed overhead* |
|
$2,630,000 |
$ |
4,310,000 |
|
| * |
These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced.
|
The company's marketing research department has recommended an introductory unit sales price of $71.00. Selling expenses are estimated to be $880,000 annually plus $4.30 for each unit sold. (Ignore income taxes.)
| 1. |
Calculate Zodiac's estimated break-even point in annual unit sales of the new product if the company uses the (a) labor-intensive production system; (b) computer-assisted manufacturing system. (Do not round intermediate calculations and round your final answer up to nearest whole number.)
|
|
|
Break-Even Point |
| Labor-intensive production system |
122,727 |
units |
| Computer-assisted manufacturing system |
|
units |
|
| 2. |
Determine the annual unit sales volume at which the firm would be indifferent between the two manufacturing methods. (Do not round intermediate calculations and round your final answer up to nearest whole number.)
|
|