Question
Oriole Company has decided to introduce a new product that can be manufactured by either a capital-intensive method or a labour- intensive method. The
Oriole Company has decided to introduce a new product that can be manufactured by either a capital-intensive method or a labour- intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs under the two methods are as follows: Capital-Intensive Labour-Intensive Direct materials $2.50 per unit $2.75 per unit Direct labour $3.00 per unit $4.00 per unit Variable overhead $1.50 per unit $2.25 per unit Fixed manufacturing costs $2,776,400 $1,705,000 Oriole's market research department has recommended an introductory unit sales price of $16. The incremental selling expenses are estimated to be $552,200 annually, plus $1 for each unit sold, regardless of the manufacturing method. Calculate the estimated break-even point in annual unit sales of the new product if Oriole Company uses (1) the capital-intensive manufacturing method, or (2) the labour-intensive manufacturing method. Break-even point (1) (2) Capital-intensive manufacturing method Labour-intensive manufacturing method units units
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