ACC 561 DECISION MAKING ACROSS THE ORGANIZATION

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Write a paper that is at least 750 words (papers that are less than 750 words, will receive a reduction in points) in which you respond to the Broadening Your Perspective 18-1 activity titled “Decision Making Across the Organization” in Ch. 18 of Accounting.

DECISION MAKING ACROSS THE ORGANIZATION

BYP18-1 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-   Labor-

Intensive   Intensive

Direct materials  $5 per unit   $5.50 per unit

Direct labor   $6 per unit   $8.00 per unit

Variable overhead   $3 per unit     $4.50 per unit

Fixed manufacturing costs   $2,508,000   $1,538,000

 

Martinez’s 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.

 

Instructions

With the class divided into groups, answer the following.

(a) Calculate the estimated break-even point in annual unit sales of the new product if Martinez

Company uses the:

(1) Capital-intensive manufacturing method.

(2) Labor-intensive manufacturing method.

(b) Determine the annual unit sales volume at which Martinez Company would be indifferent between the two manufacturing methods.

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

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