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Indifference point

Indifference point

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
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

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)
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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