Candice Company has decided to introduce a new product that can be manufactured by either of two methods. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs of the two methods are as follows:

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:
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?

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Method A Raw materials Direct labor Variable overhead Directly traceable incremental fixed $5.00 6.00 3.00 Method B $5.60 7.20 4.80 manufacturing costs per year $2,440,000 $1320,000