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	$15.00
Variable manufacturing overhead per unit	$7.00	$2.00
Fixed manufacturing overhead per year	$3,140,000.00	$1,100,000.00

Paper Mate's market research department has recommended an introductory unit sales price of $33. The incremental selling costs are predicted to be $500,000 per year, plus $2 per unit sold.

2. Compute operating leverage for each alternative at a volume of 300,000 units. Round your answers two decimal places.

Capital-Intensive operating leverage

Answer

Labor-Intensive operating leverage

Answer