Indifference point
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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#25 (2) ANSWER ALL THE QUESTIONS AND SHOW YOUR SOLUTION

Transcribed Image Text:Indifference point
25. BEP, indifference point. Kimbrell 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.
PROFIT PLANNING AND COST-VOLUME-PROFIT ANALYSIS
CHAPTER 5
212
The estimated unit manufacturing costs by the tow methods follow:
Capital
Intensive
P 5.00
Labor
Intensive
P 5.60
Materials
Direct labor
Variable factory overhead
6.00
7.20
4.80
3.00
Direct traceable incremental fixed factory overhead is expected to be P2,440,000 if the
capital-intensive method is chosen and P1,320,000 if the labor-intensive method is
chosen. Kimbrells's Market Research Department has recommended an introductory
unit sales price of P30. Regardless of the manufacturing method chosen, the
incremental marketing expenses are estimated to be P500,000 per year plus P2 for each
unit sold.
Required:
Calculate the estimated breakeven point for the new product in annual units of
1.
sales if Kimbrell Company uses the:
a. capital-intensive manufacturing method.
b. labor-intensive manufacturing method.
2. Determine the annual unit sales volume at which the choice between the two
manufacturing methods would not make a difference.
(icma)
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