Decision Making Across the Organization

The Martinez family has decided to introduce a young intersection eyeshade and would like to appreciate the cost of manufacturing through great(p) intensifier and labour party intense manufacturing systems to watch over which of the two regularitys to employ. The respects to be used in the evaluation for crown intensifier manufacturing are direct materials at $5 per social social unit of measurement, direct turn over at $6 per unit, a multivariate star smash of $3 per unit, and strict manufacturing cost of $2,508,000. The values for material, labor, and smasher are summed to find the total variable cost of $14.The labor intensifier values are direct materials at $5.50 per unit, direct labor at $8 per unit, a variable overhead of $4. 50 per unit, and quick-frozen manufacturing costs of $1,538,000. The research department of Martinez recommended an introductory cost unit gross revenue scathe of $30. Incremental selling expenses are estimated to be $502,000 per annum plus $2 for each unit sold disregardless of the method used to manufacture. Capital Intensive To calculate bully intense estimated break-even blame in annual unit gross sales of the new product the function delimitation per unit and voice brim per proportion are necessary.The comparison for ploughshare border per unit is Selling Price + variant Cost, or $30 + $14, for a parting margin per unit price of $16. The equation for role margin proportionalityn is Contribution Margin per unit / Selling Price, or $16/$30, for a section margin ratio of 53%. The break-even usher in units is work out by dividing the immovable costs by the section margin per unit value, $2,508,000 / $16 = 156750 units as the break-even point. The fixed costs separate by the portion margin ratio, $2,508,000 / 53% = $4,702,500 break-even point in dollars. craunch IntensiveTo calculate big(p) intensive estimated break-even point in annual unit sales of the new product the persona margin per unit and contribution margin per ratio are necessary. The equation for contribution margin per unit is Selling Price + varying Cost, or $30 + $18, for a contribution margin per unit price of $12. The equation for contribution margin ratio is Contribution Margin per building block / 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 divide by the contribution margin ratio, $1,538,000 / 40% = $3,845,000 break-even point in dollars. Unit Sales intensity of Indifference The volume of unit sales at which the Martinez participation would be absent-minded between the two manufacturing methods is calculated as Sales = Variable be + Fixed Costs + Net Income. The value for sales is equivalent to the sales price, $30, figure by the number of units sold. Variable costs of $1 4 for heavy(p) intensive and $18 for labor intensive are also multiplied by the number of units sold.Fixed costs were provided at $2,508,000 for nifty 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 force pivotal decisions about methods of manufacturing that will turn out 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 for 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 littler 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 survey the costs of manufacturing through capital intensive and labor intensive manufacturing methods to take 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 $1,5 38,000. The research department of Martinez 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 I ncome. 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 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 capit al 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 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.