Mozaic Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system (CAM) or a labor-intensive production system (LIP). The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: CAM System LIP System Direct Material Direct Labor (DLH) $5.00 $5.60 0.5 DLH x $12 $6.00 0.8 DLH x $9 $7.20 Variable Overhead $3.00 0.8 DLH x $6 $1,320,000 0.5 DLH x $6 $4.80 Fixed Overhead* $2,440,000 * These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company's marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: 1. Describe the circumstances under which the firm should employ each of the two manufacturing methods. 2. Identify some business factors other than operating leverage that management should consider before selecting the manufacturing method.

Mozaic Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system (CAM) or a labor-intensive production system (LIP). The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: CAM System LIP System Direct Material Direct Labor (DLH) $5.00 $5.60 0.5 DLH x $12 $6.00 0.8 DLH x $9 $7.20 Variable Overhead $3.00 0.8 DLH x $6 $1,320,000 0.5 DLH x $6 $4.80 Fixed Overhead* $2,440,000 * These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company's marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: 1. Describe the circumstances under which the firm should employ each of the two manufacturing methods. 2. Identify some business factors other than operating leverage that management should consider before selecting the manufacturing method.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 7CE

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Mozaic Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system (CAM) or a labor-intensive production system (LIP). The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: CAM System LIP System Direct Material $5.00 $5.60 Direct Labor (DLH) 0.5 DLH x $12 $6.00 0.8 DLH x $9 $7.20 Variable Overhead 0.5 DLH x $6 $3.00 0.8 DLH x $6 $4.80 Fixed Overhead* $2,440,000 $1,320,000 * These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company's marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: 1. Calculate the estimated break-even point in annual unit sales of the new product if the company uses the (a) computer-assisted…
The Chopin Company has decided to introduce a new product. The new product can be manufactured by either a computer-assisted manufacturing (CAM) or a labor-intensive production (LIP) system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs for each of the two methods are as follows. CAM System: Direct Material = $5.0 Direct Labor (DLH) = 0.5 DLH X $12 = $6 Variable Overhead = 0.5DLHx$6 = $3 Fixed Iverhead* = $ 2,440,000 LIP System: Direct Material = $5.6 Direct Labor (DLH) = 0.8 DLH X $9 = $7.2 Variable Overhead = 0.8 DLH X $6 = $4.8 Fixed Overhead* = $1,320,000 *These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company’s marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: Calculate the estimated…
The Chopin Company has decided to introduce a new product. The new product can be manufactured by either a computer-assisted manufacturing (CAM) or a labor-intensive production (LIP) system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs for each of the two methods are as follows. CAM System: Direct Material = $5.0 Direct Labor (DLH) = 0.5 DLH X $12 = $6 Variable Overhead = 0.5DLHx$6 = $3 Fixed Iverhead* = $ 2,440,000 LIP System: Direct Material = $5.6 Direct Labor (DLH) = 0.8 DLH X $9 = $7.2 Variable Overhead = 0.8 DLH X $6 = $4.8 Fixed Overhead* = $1,320,000 *These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company’s marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required 4. Describe the circumstances under…
Required information [The following information applies to the questions displayed below.] Celestial Products, Inc., has decided to introduce a new product, which can be manufactured by either a computer- assisted manufacturing system or a labor-intensive production system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: Direct material Direct labor (DLH denotes direct-labor hours) Variable overhead Fixed overhead* Computer-Assisted Manufacturing System $ Volume 0.5DLH @ $25.50 0.5DLH @ $16.50 9.00 12.75 8.25 $4,410,000 units Labor-Intensive Production System $ 0.8DLH @ $21.00 0.8DLH @ $16.50 *These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. 9.90 16.80 13.20 $2,730,000 The company's marketing research department has recommended an introductory unit sales price of $75.00. Selling expenses are estimated to be $900,000…
Carla Vista 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 $5.50 per unit $10.75 per unit Direct labour $4.00 per unit $9.00 per unit Variable overhead $3.50 per unit Fixed manufacturing costs $2,423,040 $7.25 per unit $1,488,000 Carla Vista's market research department has recommended an introductory unit sales price of $32. The incremental selling expenses are estimated to be $481,920 annually, plus $2 for each unit sold, regardless of the manufacturing method. (a) Your Answer Correct Answer (Used) Your answer is partially correct. Calculate the estimated break-even point in annual unit sales of the new product if Carla Vista Company uses (1) the capital- intensive manufacturing method, or (2) the…
Crane 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: Direct materials Direct labour Variable overhead Fixed manufacturing costs Capital-Intensive $10.00 per unit $12.00 per unit $6.00 per unit $2,624,960 Labour-Intensive $11.00 per unit $16.00 per unit $9.00 per unit $1,612,000 Crane's market research department has recommended an introductory unit sales price of $64. The incremental selling expenses are estimated to be $522,080 annually, plus $4 for each unit sold, regardless of the manufacturing method.
Carla Vista 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 $5.50 per unit $10.75 per unit Direct labour $4.00 per unit $9.00 per unit Variable overhead $3.50 per unit $7.25 per unit Fixed manufacturing costs $2,423,040 $1,488,000 Carla Vista's market research department has recommended an introductory unit sales price of $32. The incremental selling expenses are estimated to be $481,920 annually, plus $2 for each unit sold, regardless of the manufacturing method. (a) * Your answer is incorrect. Calculate the estimated break-even point in annual unit sales of the new product if Carla Vista Company uses (1) the capital- intensive manufacturing method, or (2) the labour-intensive manufacturing method.
ABC Company is introducing a new product. The managers are trying to decide whether to make one of its components or to buy it from an outside supplier. The space that could be used to make the part has no alternative use. The outside supplier will sell the part to ABC for P800 per unit. Following is an estimate of per-unit costs if ABC makes the part: Materials P225 ; Direct labor P250 ; Variable manufacturing overhead P225 ; Fixed manufacturing overhead P325. Fixed manufacturing overhead consists of depreciation on machinery and a share of the costs of the factory based on the floor space that manufacturing the part would occupy. Determine whether ABC should make or buy the part. Also you have to indicate the amount favoring the better alternative. please answer
Accounting Evman Company has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system or a labour-intensive production system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: computer-assisted manufacturing system labour-intensive production system Direct Material $5.00 $5.60 Direct Labour .5DLH @ $12 $6.00 .8 DLH @ $9 $7.20 Variable Overhead .5 DLH @ $6 $3.00 .8 DLH @ $6 $4.80 Fixed Overhead * $2,440,000 $1,320,000 These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company’s marketing research department has recommended an introductory sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit…
Accounting Evman Company has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system or a labour-intensive production system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: computer-assisted manufacturing system labour-intensive production system Direct Material $5.00 $5.60 Direct Labour .5DLH @ $12 $6.00 .8 DLH @ $9 $7.20 Variable Overhead .5 DLH @ $6 $3.00 .8 DLH @ $6 $4.80 Fixed Overhead * $2,440,000 $1,320,000 These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company’s marketing research department has recommended an introductory sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit…
XYZ Corp. currently produces a part but is looking to reduce costs. Units 20,000 Per Unit Total Cost Direct Materials $ 10 $ 200,000 Direct Labor $ 5 $ 100,000 Mfg. Overhead $ 8 $ 160,000 Total $ 23 $ 460,000 The fixed mfg. overhead includes $75,000 of costs that will continue even if outsourced. If the part is outsourced, the space can be used to make other parts and generate an additional $27,000 of contribution margin. A. Show calculations to determine how much XYZ would consider paying for the part from an outside source.
Pharoah 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. Direct materials Direct labor Variable overhead Fixed manufacturing costs (a) Pharoah' market research department has recommended an introductory unit sales price of $28.00. The selling expenses are estimated to be $432,000 annually plus $2.00 for each unit sold, regardless of manufacturing method. Capital-Intensive $4.00 per unit $5.00 per unit $3.00 per unit $2,284,000 Calculate the estimated break-even point in annual unit sales of the new product if Pharoah Company uses the: 1. Capital-intensive manufacturing method. Labor-intensive manufacturing method. 2. Labor-Intensive $4.50 per unit $7.00 per unit $4.00 per unit $1,437,000 Break-even point in units Capital-Intensive Labor-Intensive