Problem:
This is for Accounting utilizing Accounting for Decision Making and Control, 5th edition, by Jerold L. Zimmerman. Each question should be approximately one to two full pages to allow a thorough discussion of the case material. Typed double space.
Candice Company
Candice Company has decided to introduce a new product that can be manufactured by either of two methods. The manufacturing methods will not affect the quality of the product. The manufacturing costs of the two methods are as follows:
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Method A
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Method B
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Raw materials
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$5.00
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$5.60
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Direct labor
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6
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7.2
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Variable overhead
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3
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4.8
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Directly traceable
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incremental fixed
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mfg costs per year
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$2,440,000
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$1,320,000
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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.
A. Calculate the estimated break-even point in annual unit sales of the new product if Candice Co. uses
(i) Manufacturing method A
(ii) Manufacturing method B
B. Which production technology should the firm use and why?