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3. Assume Paper Place is planning to introduce a new notepad that can be manufactured using either a capital-intensive method or a labor-intensive method. The
3. Assume Paper Place is planning to introduce a new notepad 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: Direct materials per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year Capital Intensive 5.00 5.00 $4.00 $2,440,000 Labor Intensive $8.00 12.00 $2.00 $700,000 Paper Place's market research department has recommended an introductory unit sales price of $40. The incremental selling costs are predicted to be $500,000 per year, plus $2 per unit sold. a. Determine the annual break-even point in units if Paper Place uses the (1) Capital-intensive manufacturing method, or (2) Labor-intensive manufacturing method b. Determine the unit sales volume required to earn a profit of $1,000,000 if Paper Place uses the (1) Capital-intensive manufacturing method, or (2) Labor-intensive manufacturing method c. Determine the annual unit volume at which Paper Place is indifferent between the two manufacturing methods. d. Draw a cost-volume-profit graph with the two manufacturing methods on the same graph. Label the two breakeven points, and discuss the differences the two manufacturing methods would have on profit. Hint: just graph revenues and total costs for each method. Adding lines for variable costs and fixed costs will clutter the graph and make it harder to interpret
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