gagliano is introducing a new product using either a capital intensive method or a l 465504

Gagliano is introducing a new product using either a capital-intensive method or a labor-intensive method, which will not affect the quality of the product. Estimated manufacturing costs as follows:

Capital-Intensive

Direct Materials $5/unit

Direct Labor $6/unit

Variable Overhead $3/unit

Fixed Manufacturing Costs $2,508,000.

Labor-Intensive

Direct Materials $5.50/unit

Direct Labor $8.00/unit

Variable Overhead $4.50/unit

Manufacturing Costs $1,538,000

Introductory unit sales price of $30. Incremental selling expenses are estimated to be $502,000 annually plus $2/unit sold, regardless of manufacturing method.

Instructions:

(a) Calculate the estimated break-even point in annual unit sales of the new product if Gagliano Company uses the: (1) capital-intensive method (2) labor-intensive method.

(b) Determine annual unit sales volume at which they would be indifferent between the two methods.

(c) Explain when both should be employed.