Expand Your Critical Thinking Decision-Making Across the Organization CT5.1 Creative Ideas Company has decided to introduce...

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Expand Your Critical Thinking Decision-Making Across the Organization CT5.1 Creative Ideas Company has decided to introduce a new product. The new product can be manu- factured 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 Direct labor Variable overhead Fixed manufacturing costs $5 per unit $5.50 per unit $6 per unit $8.00 per unit $3 per unit $2,524,000 $4.50 per unit $1,550,000 Creative Ideas' market research department has recommended an introductory unit sales price of $32. The 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 Creative Ideas Company uses the: 1. Capital-intensive manufacturing method. 2. Labor-intensive manufacturing method. b. Determine the annual unit sales volume at which Creative Ideas Company would be indifferent between the two manufacturing methods. c. Explain the circumstance under which Creative Ideas should employ each of the two manufactur- ing methods. (CMA adapted) Expand Your Critical Thinking Decision-Making Across the Organization CT5.1 Creative Ideas Company has decided to introduce a new product. The new product can be manu- factured 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 Direct labor Variable overhead Fixed manufacturing costs $5 per unit $5.50 per unit $6 per unit $8.00 per unit $3 per unit $2,524,000 $4.50 per unit $1,550,000 Creative Ideas' market research department has recommended an introductory unit sales price of $32. The 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 Creative Ideas Company uses the: 1. Capital-intensive manufacturing method. 2. Labor-intensive manufacturing method. b. Determine the annual unit sales volume at which Creative Ideas Company would be indifferent between the two manufacturing methods. c. Explain the circumstance under which Creative Ideas should employ each of the two manufactur- ing methods. (CMA adapted)

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