Celestial Products, Inc., has decided to introduce a new product, which can be manufactured by either a computer- assisted manufacturing system or a labor-intensive production system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: Direct material Direct labor (DLH denotes direct-labor hours) Variable overhead Fixed overhead* Computer-Assisted Manufacturing System $ 8.40 0.5DLH @ $22.50 11.25 0.5DLH @ $13.50 6.75 $4,110,000 Labor-Intensive Production System $ 9.30 0.8DLH @ $18.00 14.40 0.8DLH @ $13.50 10.80 $2,430,000 *These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company's marketing research department has recommended an introductory unit sales price of $63.00. Selling expenses are estimated to be $840,000 annually plus $3.90 for each unit sold. (Ignore income taxes.) Required: 1. Calculate the estimated break-even point in annual unit sales of the new product if the company uses the (a) computer-assisted manufacturing system; (b) labor-intensive production system. (Do not round intermediate calculations. Round your final answers to the nearest whole number.) Break-Even Point units Computer-assisted manufacturing system Labor-intensive production system units 2. Determine the annual unit sales volume at which the firm would be indifferent between the two manufacturing methods. (Do not round intermediate calculations. Round your final answer to the nearest whole number.) Volume units Rosario Company, which is located in Buenos Aires, Argentina, manufactures a component used in farm machinery. The firm's fixed costs are 4,000,000 p per year. The variable cost of each component is 1,700 p, and the components are sold for 3,300 p each. The company sold 5,800 components during the prior year. (p denotes the peso, Argentina's national currency. Several countries use the peso as their monetary unit. On the day this exercise was written, Argentina's peso was worth 0.104 U.S. dollar. In the following requirements, ignore income taxes.) Required: 1. Compute the break-even point in units. (Round your answer to the nearest whole number.) 2. What will the new break-even point be if fixed costs increase by 20 percent? (Round your answer to the nearest whole number.) 3. What was the company's net income for the prior year? 4. The sales manager believes that a reduction in the sales price to 2,800 p will result in orders for 600 more components each year. What will the break-even point be if the price is changed? (Round your answer to the nearest whole number.) 5. Should the price change discussed in requirement 4 be made? 1. Break-even point 2. New break-even point components components 3. Net income p 4. New break-even point components 5. Should the price change discussed in requirement 4 be made
