Aternative 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 un Valable manufacturing overhead per un Fad manufacturing owhead per year $5.00 $5.00 17.00 $3,140,000.00 3600 $1500 $2.00 $1,10000000 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 12 per unit sold te Determine the annual break-even point in units if Paper Mate uses the 1.Capital intensive manufacturing method. units 2. Labor-intensive manufacturing method. unips th) Determine the annual unit volume at which Paper Mate is indifferent between the two manufacturing methods 0 units Management wants to know more about the effect of each alternative on operating leverage 1. Explain mperating leverage and the relationship between operating leverage and the volatiley of earnings Othey have little or no correlation because they are unrelated (c) Management wants to know more about the effect of each alternative on operating leverage. 1. Explain operating leverage and the relationship between operating leverage and the volatility of earnings. OThey have little or no correlation because they are unrelated. OThey are negatively correlated, with increases in operating leverage accompanied by decreases in the volatility of earnings. OThey are positively correlated, with increases in operating leverage accompanied by increases in the volatility of earnings. 2. Compute operating leverage for each alternative at a volume of 300,000 units. Round your answers two decimal places. Capital-Intensive operating leverage 0 Labor-Intensive operating leverage 0 3. Which alternative has the higher operating leverage? Why? OThe capital intensive method has a higher operating leverage because of the higher variable manufacturing overhead. OThe labor intensive method has a higher operating leverage because of higher variable conversion costs. OThe capital intensive method has a higher operating leverage because of the greater use of fixed costs. OThe labor intensive method has a higher operating leverage because of lower variable manufacturing overhead. Check Previous Save Answers