Decision Making Across the Organization

The Martinez Company has decided to introduce a new bear witness of intersection and would like to rate the costs of manufacturing through not bad(p) intensifier and labor intensifier manufacturing methods to determine which of the two methods to employ. The comforts to be used in the valuation for capital intensive manufacturing are discipline materials at $5 per unit of measurement, direct labor at $6 per unit, a variable overhead of $3 per unit, and frozen(p) manufacturing costs of $2,508,000. The value for material, labor, and overhead are summed to find the total variable cost of $14.The labor intensive values are direct materials at $5.50 per unit, direct labor at $8 per unit, a variable overhead of $4. 50 per unit, and mend manufacturing costs of $1,538,000. The research department of Martinez recommended an introductory price unit sales price of $30. Incremental change expenses are estimated to be $502,000 one-yearly plus $2 for all(prenominal) unit sold regar dless of the method used to manufacture. majuscule Intensive To calculate capital intensive estimated break-even point in annual unit sales of the new harvest-home the persona boundary line per unit and role allowance per ratio are necessary.The equivalence for function valuation account per unit is Selling Price + variable quantity Cost, or $30 + $14, for a contribution margin per unit price of $16. The equation for contribution margin ration is ploughshare Margin per Unit / Selling Price, or $16/$30, for a contribution margin ratio of 53%. The break-even point in units is metric by dividing the frigid costs by the contribution margin per unit value, $2,508,000 / $16 = 156750 units as the break-even point. The fixed costs divided by the contribution margin ratio, $2,508,000 / 53% = $4,702,500 break-even point in dollars. Labor IntensiveTo calculate capital intensive estimated break-even point in annual unit sales of the new product the contribution margin per unit and contribution margin per ratio are necessary. The equation for contribution margin per unit is Selling Price + Variable Cost, or $30 + $18, for a contribution margin per unit price of $12. The equation for contribution margin ratio is Contribution Margin per Unit / Selling Price, or $12/$30, for a contribution margin ratio of 40%. The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit value, $1,538,000 / $12 = 128,167 units as the break-even point.The fixed costs divided by the contribution margin ratio, $1,538,000 / 40% = $3,845,000 break-even point in dollars. Unit Sales record of Indifference The volume of unit sales at which the Martinez Company would be indifferent between the two manufacturing methods is calculated as Sales = Variable Costs + frozen Costs + Net Income. The value for sales is equivalent to the sales price, $30, multiplied by the number of units sold. Variable costs of $14 for capital intensive and $18 for la bor intensive are also multiplied by the number of units sold.Fixed costs were provided at $2,508,000 for capital intensive and $1,538,000 for labor intensive. Net income is assumed to be $0. The equation values for 180,000 units under capital intensive manufacturing and 240,000 under labor intensive manufacturing is the volume of units for each method to equal sales of $2,880,000, the point at which the annual unit sales volume would be indifferent. Conclusion Evaluating the costs of manufacturing help management to practice crucial decisions about methods of manufacturing that will result in hit for the business.Evaluating the capital intensive manufacturing method versus the labor intensive method provides the values necessary to need business decisions. The circumstances in which the Martinez Company would employ a capital intensive manufacturing method for the new product, based on the numbers provided in the scenario, would be if the contribution margin and per unit cost we re cheaper than the labor intensive values. In this scenario, the labor intensive values offer a smaller break-even point value for units and dollars than the capital intensive method of manufacturing.Decision Making Across the OrganizationThe Martinez Company has decided to introduce a new product and would like to evaluate the costs of manufacturing through capital intensive and labor intensive manufacturing methods to determine which of the two methods to employ. The values to be used in the evaluation for capital intensive manufacturing are direct materials at $5 per unit, direct labor at $6 per unit, a variable overhead of $3 per unit, and fixed manufacturing costs of $2,508,000. The values for material, labor, and overhead are summed to find the total variable cost of $14.The labor intensive values are direct materials at $5.50 per unit, direct labor at $8 per unit, a variable overhead of $4.50 per unit, and fixed manufacturing costs of $1,538,000. The research department of M artinez recommended an introductory price unit sales price of $30. Incremental selling expenses are estimated to be $502,000 annually plus $2 for each unit sold regardless of the method used to manufacture. Capital IntensiveTo calculate capital intensive estimated break-even point in annual unit sales of the new product the contribution margin per unit and contribution margin per ratio are necessary. The equation for contribution margin per unit is Selling Price + Variable Cost, or $30 + $14, for a contribution margin per unit price of $16. The equation for contribution margin ration is Contribution Margin per Unit / Selling Price, or $16/$30, for a contribution margin ratio of 53%.The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit value, $2,508,000 / $16 = 156750 units as the break-even point. The fixed costs divided by the contribution margin ratio, $2,508,000 / 53% = $4,702,500 break-even point in dollars. Labor IntensiveTo calculate capital intensive estimated break-even point in annual unit sales of the new product the contribution margin per unit and contributionmargin per ratio are necessary. The equation for contribution margin per unit is Selling Price + Variable Cost, or $30 + $18, for a contribution margin per unit price of $12.The equation for contribution margin ratio is Contribution Margin per Unit / Selling Price, or $12/$30, for a contribution margin ratio of 40%. The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit value, $1,538,000 / $12 = 128,167 units as the break-even point. The fixed costs divided by the contribution margin ratio, $1,538,000 / 40% = $3,845,000 break-even point in dollars. Unit Sales Volume of IndifferenceThe volume of unit sales at which the Martinez Company would be indifferent between the two manufacturing methods is calculated as Sales = Variable Costs + Fixed Costs + Net Income. The value for sales is equiva lent to the sales price, $30, multiplied by the number of units sold. Variable costs of $14 for capital intensive and $18 for labor intensive are also multiplied by the number of units sold. Fixed costs were provided at $2,508,000 for capital intensive and $1,538,000 for labor intensive.Net income is assumed to be $0. The equation values for 180,000 units under capital intensive manufacturing and 240,000 under labor intensive manufacturing is the volume of units for each method to equal sales of $2,880,000, the point at which the annual unit sales volume would be indifferent.ConclusionEvaluating the costs of manufacturing help management to make crucial decisions about methods of manufacturing that will result in profit for the business. Evaluating the capital intensive manufacturing method versus the labor intensive method provides the values necessary to make business decisions.The circumstances in which the Martinez Company would employ a capital intensive manufacturing method fo r the new product, based on the numbers provided in the scenario, would be if the contribution margin and per unit cost were cheaper than the labor intensive values. In this scenario, the labor intensive values offer a smaller break-even point value for units and dollars than the capital intensive method of manufacturing.