Sharpie's market research department has recommended an introductory unit sales price of $40. The incremental selling costs are predicted to be $500,000 per year, plus $2 per unit sold.

Required:

a. Determine the annual break-even point in units if Paper Mate uses the:

1. Capital-intensive manufacturing method.

2. Labor-Intensive manufacturing method.

b. Determine the annual unit volumme at which Paper Mate is indifferent between the two manufacturing methods.

c. Compute operating leverage for each alternative at a volume of 250,000 units.

1. Capital-intensive operating leverage.

2. Labor-Intensive operating leverage.

Alternative Production Procedures and Operating Leverage Assume Sharpie, a brand of Sanford LP, is planning to introduce a new executive pen that can be manufactured using either a capital-intensive method or a labor-intensive method. The predictecd manufacturing costs for each method are as follows: Direct materials per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year Capital Intensive Labor Intensive $6.00 $10.00 $2.00 $700,000 $5.00 $5.00 $4.00 $ 2,440,000