Question: Please solve this Question about Alternative Production Procedures and Operating Leverage Assume Likhle brand is planning to introduce a new executive marker that can be

 Please solve this Question about Alternative Production Procedures and Operating Leverage

Please solve this Question about Alternative Production Procedures and Operating Leverage Assume Likhle brand is planning to introduce a new executive marker that can be manufactured using either a capital-intensive method or a labor-intensive method. The predicted manufacturing costs for each method are as follows: Capital Intensive Labor Intensive Direct materials per unit $10.00 $12.00 Direct labor per unit $ 4.00 $ 12.00 Variable manufacturing overhead per unit $ 5.00 $ 2.00 Fixed manufacturing overhead per year $ 1,800,000 $500,000 Likhleis market research department has recommended an introductory unit sales price of $100. The incremental selling costs are predicted to be $250,000 per year, plus $4 per unit sold. (a) Determine the annual break-even point in units if Likhle uses the 1) Capital-intensive manufacturing method, and 2) Labor-intensive manufacturing method. Show your calculations and round your answers to the nearest whole number. 1) Capital-intensive manufacturing method. 2) Labor-intensive manufacturing method. (b) Determine the annual unit volume at which Likhle is indifferent between the two manufacturing methods. Show your calculations and round your answer to the nearest whole number. (c) Compute operating leverage for each alternative at a volume of 100,000 units. Show your calculations and round your answers two decimal places. 1) Capital-Intensive operating leverage 2) Labor-Intensive operating leverage

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!