| (a) | What is the variable gasoline cost of going one mile in the hybrid car? What is the variable cost of going one mile in the traditional car? |
| (b) | Using the information in part (a), if miles is your unit of measure, what is the contribution margin of the hybrid vehicle relative to the traditional vehicle? That is, express the variable cost savings on a per-mile basis. |
| (c) | How many miles would you have to drive in order to break even on your investment in the hybrid car? |
| (d) | What other factors might you want to consider? |
Expand Your Critical Thinking 18-1 a-b (Part Level Submission) Ivanhoe 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 manufacturing costs by the two methods are as follows. Direct materials Direct labor Variable overhead Fixed manufacturing costs Capital-Intensive $5 per unit $6 per unit $3 per unit $2,834,000 Labor-Intensive $6.00 per unit $8.00 per unit $5.00 per unit $1,756,000 Ivanhoe' market research department has recommended an introductory unit sales price of $34. The incremental selling expenses are estimated to be $532,000 annually plus $2 for each unit sold, regardless of manufacturing method. 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 Ivanhoe Company uses the: 1. Capital-intensive manufacturing method. 2. Labor-intensive manufacturing method. Capital-Intensive Labor-Intensive Break-even point in units (b) Determine the annual unit sales volume at which creative Ideas Company would be indifferent between the two manufacturing methods. (Round answer to 0 decimal places, e.g. 5,275.) Annual unit sales volume units Expand Your Critical Thinking 18-6 a-c (Part Level Submission) Cost-volume-profit analysis can also be used in making personal financial decisions. For example, the purchase of a new car is one of your biggest personal expenditures. It is important that you carefully analyze your options. Suppose that you are considering the purchase of a hybrid vehicle. Let's assume the following facts. The hybrid will initially cost an additional $9,000 above the cost of a traditional vehicle. The hybrid will get 30 miles per gallon of gas, and the traditional car will get 18 miles per gallon. Also, assume that the cost of gas is $1.8 per gallon. Using the facts above, answer the following questions. (a) What is the variable gasoline cost of going one mile in the hybrid car? What is the variable cost of going one mile in the traditional car? (Round answers to 2 decimal places, e.g. 0.25.) Hybrid car Traditional car Variable gasoline cost $ Click if you would like to Show Work for this question: Open Show Work Expand Your Critical Thinking 18-1 a-b (Part Level Submission) Ivanhoe 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 manufacturing costs by the two methods are as follows. Direct materials Direct labor Variable overhead Fixed manufacturing costs Capital-Intensive $5 per unit $6 per unit $3 per unit $2,834,000 Labor-Intensive $6.00 per unit $8.00 per unit $5.00 per unit $1,756,000 Ivanhoe' market research department has recommended an introductory unit sales price of $34. The incremental selling expenses are estimated to be $532,000 annually plus $2 for each unit sold, regardless of manufacturing method. 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 Ivanhoe Company uses the: 1. Capital-intensive manufacturing method. 2. Labor-intensive manufacturing method. Capital-Intensive Labor-Intensive Break-even point in units (b) Determine the annual unit sales volume at which creative Ideas Company would be indifferent between the two manufacturing methods. (Round answer to 0 decimal places, e.g. 5,275.) Annual unit sales volume units Expand Your Critical Thinking 18-6 a-c (Part Level Submission) Cost-volume-profit analysis can also be used in making personal financial decisions. For example, the purchase of a new car is one of your biggest personal expenditures. It is important that you carefully analyze your options. Suppose that you are considering the purchase of a hybrid vehicle. Let's assume the following facts. The hybrid will initially cost an additional $9,000 above the cost of a traditional vehicle. The hybrid will get 30 miles per gallon of gas, and the traditional car will get 18 miles per gallon. Also, assume that the cost of gas is $1.8 per gallon. Using the facts above, answer the following questions. (a) What is the variable gasoline cost of going one mile in the hybrid car? What is the variable cost of going one mile in the traditional car? (Round answers to 2 decimal places, e.g. 0.25.) Hybrid car Traditional car Variable gasoline cost $ Click if you would like to Show Work for this question: Open Show Work
