Kimbrell 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 unit manufacturing costs by the two methods follow:
Capital IntensiveLabor Intensive
Materials .............................................$5.00$5.60
Direct labor ..........................................6.007.20
Variable factory overhead ........................3.004.80
Directly traceable incremental fixed factory overhead is expected to be $2,440,000 if the capital-intensive method is chosen and $1,320,000 if the labor-intensive method is chosen. Kimbrell's Market Research Department has recommended an introductory unit sales price of $30. Regardless of the manufacturing method chosen, the incremental marketing expenses are estimated to be $500,000 per year plus $2 for each unit sold.
Required:
(1) Calculate the estimated break-even point for the new product in annual units of sales, if Kimbrell Company uses the:
(a) Capital-intensive manufacturing method.
(b) Labor-intensive manufacturing method.
(2) Determine the annual unit sales volume at which the choice between the two manufacturing method would not make a difference.