Accounting

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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
\$5.00
\$6.00
\$3.00
\$2,440,000
\$5.60
\$7.20
\$4.80
\$1,320,000

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.

Required:

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.)

• Accounting -

1. Capital : 183750 Labor: 146774

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