March 30, 2015

Homework Help: Accounting

Posted by Flo on Monday, August 16, 2010 at 10:16am.

Candace Corporation has decided to introduce a new product that can be manufactured using
either a capital-intensive method or a labour-intensive method.

The predicted manufacturing costs for each method are as follows:

Capital-Intensive Labour-Intensive
Direct materials per unit
Direct labour per unit
Variable manufacturing overhead per unit
Fixed manufacturing overhead per year

Candace’s market research department has recommended an introductory unit sales price of $30.
The incremental selling costs are predicted to be $500,000 per year plus $2 per unit sold.


1. Calculate the annual break-even point in units if Candace used the:
a. Capital-intensive manufacturing method
b. Labour-intensive manufacturing method

2. Determine the annual unit volume at which Candace would be indifferent between the
two manufacturing methods. (HINT: Candace would be indifferent between the two
methods at unit volume X where costs are equal. You need to solve for X.)

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