Capital-Intensive , accounting homework help


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.

Capital-Intensive Labor-Intensive
Direct materials $6 per unit $6.50 per unit
Direct labor $7 per unit $9.00 per unit
Variable overhead $4 per unit $5.50 per unit
Fixed manufacturing costs $2,978,000 $1,829,000

Creative Ideas’ market research department has recommended an introductory unit sales price of $38. The incremental selling expenses are estimated to be $592,000 annually plus $2 for each unit sold, regardless of manufacturing method.

With the class divided into groups, answer the following.


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


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