For Professor Ryan: Variable and fixed costs paper

Must be original

Must be original

Must be original

Must be original

 

 

See attached doc, for Profess Ryan only

 

DECISION MAKING ACROSS THE ORGANIZATION

Martinez Company has decided to introduce a new product. The new product can be manufactured by either a capital-intensive method or a labor-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows.

 

Capital-Intensive

Labor-Intensive

Direct materials

$5 per unit

$5.50 per unit

Direct labor

$6 per unit

$8.00 per unit

Variable overhead

$3 per unit

$4.50 per unit

Fixed manufacturing costs

$2,508,000

$1,538,000

Martinez’s market research department has recommended an introductory unit sales price of $30. The incremental selling expenses are estimated to be $502,000 annually plus $2 for each unit sold, regardless of manufacturing method.

 

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