Martinez Company
Martinez Company
Collis Bent, Chamia McKoy, Dustin Medlin, Kendra Minor, Edison Oliveira
Acc/561-Accounting
March 16, 2015
Seth Jardine
Introduction
Martinez Company is introducing a new product that may be manufactured by using either one of two methods, capital intensive, or labor intensive method. For the capital intensive method, the manufacturing costs per unit are; direct material at $5.00, direct labor at $6.00, variable overhead costs at $3.00 and fixed manufacturing costs at $2,508,000 for the period. For the labor intensive method costs per unit are; direct materials at $5.50, direct labor at $8.00, variable overhead costs at $4.50 and fixed manufacturing costs at $1,538,000 for the period.
The research department of Martinez Company recommended an introductory unit sales price of $30. The selling expenses are approximately $502, 000 annually in addition to $2 for each unit sold regardless of the manufacturing method used.
Both methods will be tested and an analysis will be conducted to determine their individual benefits as follows:
Capital-Intensive Manufacturing vs. Labor-Intensive Manufacturing
Capital-Intensive
Labor Intensive
Variable Costs
Direct material per unit
5.00
5.50
Direct labor per unit
6.00
8.00
Variable overhead per unit
3.00
4.50
Selling Expenses
2.00
2.00
Variable cost per unit
16.00
20.00
Fixed costs
Manufacturing costs
2,508,000
1,538,000
Selling Expenses
502,000
502,000
Total fixed costs
3,010,000
2,040,000
Selling price per unit
30.00
30.00
Break-Even point (in units)
215,000
204,000
Annual Unit Sales
The second part of the research is to determine how many units the company will have to sell annually for both methods to be equal. To determine this number the company will need to calculate the indifference point. The calculation is the total fixed cost of both methods is subtracted and then divided by the contribution margin per unit for each method. Indifference point =
Collis Bent, Chamia McKoy, Dustin Medlin, Kendra Minor, Edison Oliveira
Acc/561-Accounting
March 16, 2015
Seth Jardine
Introduction
Martinez Company is introducing a new product that may be manufactured by using either one of two methods, capital intensive, or labor intensive method. For the capital intensive method, the manufacturing costs per unit are; direct material at $5.00, direct labor at $6.00, variable overhead costs at $3.00 and fixed manufacturing costs at $2,508,000 for the period. For the labor intensive method costs per unit are; direct materials at $5.50, direct labor at $8.00, variable overhead costs at $4.50 and fixed manufacturing costs at $1,538,000 for the period.
The research department of Martinez Company recommended an introductory unit sales price of $30. The selling expenses are approximately $502, 000 annually in addition to $2 for each unit sold regardless of the manufacturing method used.
Both methods will be tested and an analysis will be conducted to determine their individual benefits as follows:
Capital-Intensive Manufacturing vs. Labor-Intensive Manufacturing
Capital-Intensive
Labor Intensive
Variable Costs
Direct material per unit
5.00
5.50
Direct labor per unit
6.00
8.00
Variable overhead per unit
3.00
4.50
Selling Expenses
2.00
2.00
Variable cost per unit
16.00
20.00
Fixed costs
Manufacturing costs
2,508,000
1,538,000
Selling Expenses
502,000
502,000
Total fixed costs
3,010,000
2,040,000
Selling price per unit
30.00
30.00
Break-Even point (in units)
215,000
204,000
Annual Unit Sales
The second part of the research is to determine how many units the company will have to sell annually for both methods to be equal. To determine this number the company will need to calculate the indifference point. The calculation is the total fixed cost of both methods is subtracted and then divided by the contribution margin per unit for each method. Indifference point =