Question

Zodiac Companyhas decided to introduce a new product, which cambe manufacturedby either a computer, assisted manufacturing system ora 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:
Labor-intensive Computer-Assisted
Production System Manufacturing System
Direct material $8.40 $7.50
Direct labor .8DLH @ $13.50 10.80 .5DLH @ $18.00 9.00
Variable overhead .8DLH @$9.00 720
980,000 i5bLH@$9.00 4,50
'These posts are directly traceable to the new product:lin$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 $45. Selling expenses are estimated to be $750,000 annually plus $3 for each unit sold, (Ignore incometaxes.)
Required:
Calculate Zodiac's estimated break-even point in annual unit sales of the new product if the company uses the (a) "labor-intensive production system; (b) computer-assisted manufacturing system.
2. Deiermine the annual unit sales yolume at which the firm would be indifferent between the two manufacturing methods
3. Management must decide which manufacturing method to employ. One factor it should consider is operating leverage. Explain the concept of operating leverage. How is this concept related to Zodiac's decision?
4, Describe the circumstances under which the firm should employ each of the two manufacturing methods,
Identify some business factors other than operating leverage that management should consider before selecting the manufacturing method.

Answer 1

Answer:

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