Candice Company has decided to introduce a new product. The new product can be manufactured by either a capital intensive method or 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 Labor Intensive
Raw Materials $5.00 $5.60
Direct Labor .5DLH @ $12 $6.00 .8DHL @ $12 $7.20
Variable Overhead .5DHL @ $6 $3.00 .8DHL @ $6 $4.80
Directly Traceable $2,440.00 $1,320.00
incremental
fixed manufactured
costs
Candice's market research department has recommended an introductory unit sales price of $30.
The incremental selling expenses are estimated to be $500,000 annually plus $2 for each unit sold regardless of manufacturing method.
Required:
Determine the annual unit sales volume at which Candice Company would be indifferent between the two manufacturing methods.