Alternative Production Procedures and Operating Leverage Assume Paper Mate is planning to introduce a new executive pen 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	$5.00	$6.00
Direct labor per unit	$5.00	$12.00
Variable manufacturing overhead per unit	$4.00	$2.00
Fixed manufacturing overhead per year	$2,720,000.00	$860,000.00

Paper Mate's market research department has recommended an introductory unit sales price of $30. 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 Mate uses the: 1. Capital-intensive manufacturing method. Answer

units 2. Labor-intensive manufacturing method. Answer

units (b) Determine the annual unit volume at which Paper Mate is indifferent between the two manufacturing methods. Answer

units 2. Compute operating leverage for each alternative at a volume of 270,000 units. Round your answers two decimal places.

Capital-Intensive operating leverage Answer

Labor-Intensive operating leverage Answer