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Martinez 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

Martinez 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.

Capital-Intensive

Labor-Intensive

Direct materials

$5 per unit

$5.50 per unit

Direct labor

$6 per unit

$8.00 per unit

Variable overhead

$3 per unit

$4.50 per unit

Fixed manufacturing costs

$2,508,000

$1,538,000

Martinez's market research department has recommended an introductory unit sales price of $30. The incremental selling expenses are estimated to be $502,000 annually plus $2 for each unit sold, regardless of manufacturing method.

Instructions

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 Martinez Company uses the:

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