The CEO asks for your recommendation. You collect the relevant estimated costs of each method. The manufacturing method will not affect the quality of the product, and Marketing Research recommends a unit sales price of $$110\mathrm{.}00.$

Capital$-$intensive Labor$-$intensive

Direct Materials $$4\mathrm{.}10$ $$4\mathrm{.}50$

Direct labor $$5\mathrm{.}10$ $$7\mathrm{.}00$

Variable factory overhead $$3\mathrm{.}10$ $$3\mathrm{.}20$

Variable marketing expense $$2\mathrm{.}10$ $$2\mathrm{.}00$

Total variable costs $$14\mathrm{.}40$ $$16\mathrm{.}70$

Traceable fixed factory overhead $$2,610,000$ $$1,700,000$

Fixed marketing expense $$551,000$ $$551,000$

Total fixed costs $$3,161,000$ $$2,151,000$

Required:

$1.$ Using Excel, calculate the estimated break$-$even point $($in units$)$ for the new product for each method.

$2.$ Using Excel, calculate the indifference point $($in units$)$ where the operating incomes of the two methods are

equal.

$3.$ Based on historical data from a similar product, the number of units to be sold is a normally distributed random

variable with a mean of $300,000$ and a standard deviation of $100,000$ units. Using this information and Excel$’$s

formula, $=1-$NORMSDIST$($z$),$ calculate the probability that the level of sales will exceed the indifference point.

Note: z $=($Indifference Point from Part $1–$ Mean of X$)/$Standard Deviation of X$.$

 

Answer rating: 100% (QA)

To perform these calculations in Excel you can follow these steps 1 Open Excel and create a new spre... View the full answer