Accounting Martinez Corporation Essay

Martinez friendship has decided to introduce a unseasoned product. The new product can be manufactured by either a capital-intensive mode or a labor-intensive rule. The manufacturing order will not come to the quality of the product. The estimated manufacturing embodys by the two methods be as follows Capital Labor intensifier Intensive take materials $5 per building block $5.50 per unit Direct labor $6 per unit $8.00 per unit covariant overhead $ 3 per unit $ 4.50 per unit flash-frozen manufacturing addresss $ 2,508,000 $ 1,538,000 Martinezs market research incision has recommended an introductory unit sales price of $ 30. The incremental selling expenses ar estimated to be $502,000 annually improver $2 for each unit sold regardless of manufacturing method.a. Calculate the estimated break-even point in annual unit sales of the new product if Martinez company drug abuses the1. Capital intensive manufacturing method2. Labor intensive manufacturing methodb. Determin e the annual unit sales volume at which Martinez society would be indifferent among the two manufacturing methods. c. Explain the circumstance under which Martinez should employ each of the two manufacturing methods.Decision Making across the OrganizationManagers that work for a company that sells goods and services to customers must have a good thought of budgets planning to account for both fixed cost and variable costs. Making a decision within leadership of a company requires the management to know cost effectiveness, what price to sell the items, and the actual cost effectiveness of their product or service to ensure they are competitive within the market. There are many a(prenominal) differentdecisions that are made within a company and there are many different viewpoints from managers to make these decisions in order to be successful. The cost behavior analysis is the study of how detail costs of an item that is used within a company changes the takes of business acti vity. An example we can use is the American automotive maker General Motors. Looking at todays vehicles and the items such as Bluetooth functions, DVD players, satellite radio and other amenities, prices have increased. About 6-7 years ago you could purchase the a similar(p) vehicle you are purchasing to day for about 10-20% less. Due to inflation, bank interest loans decreases and the amount of new technology that is added to a new vehicle prices have gone significantly higher. This could in like manner be collect to a rising economy and rising job market and bank loans being allowed to go from 60 months previously all the way to 82 months. In todays market because of interest pass judgment being lower customers are able to buy more expensive cars that are in their periodic price range of a loan versus the concern of the full price of the vehicle. In our exercise the Martinez Company had decided to introduce a new product. However, the new product can be manufactured by of two methods either capital intensive method or the labor intensive method. Below are the solutions for the problems that were issuedA-1 Capital intensive manufacturing methodSelling price per unit = $30Total variable cost per unit = $5 + $6 + $3 + $2 = $16Total fixed cost = $2,508,000 + $502,000 = $3,010,000 persona margin per unit = $30 $16 = $14Break-even point (units) = $3,010,000 $14= 215,000 units per year.A-2 Labor intensive manufacturing methodSelling price per unit = $30Total variable cost per unit = $5.50 + $8 + $4.5 + $2 = $20Total fixed cost = $1,538,000 + $502,000 = $2,040,000Contribution margin per unit = $30 $20 = $10Break-even point (units) = $2,040,000 $10= 204,000 units per year.B= ($3,010,000 $2,040,000) / ($14 $10)= 242,500 units per year.Capital Intensive methodLabor Intensive methodRevenues$7,275,000$7,275,000Direct materials 1,212,500 1,333,750Direct labor 1,455,000 1,940,000Variable overhead 727,500 1,091,250Variable selling expenses 485,000 485,000Contri bution Margin$3,395,000$2,425,000Fixed manufacturing costs 2,508,000 1,538,000Fixed selling expenses 502,000 502,000Net Income$385,000$385,000The net income under both the manufacturing method is $385,000 when 242,500 units were sold that year. Therefore the Martinez Company would be indifferent or neutral between the two manufacturing methods at this level of annual sales. C.The Martinez Company should be employ the capital intensive manufacturing method if the units produced are identical in nature capital. They can also use the capital intensive manufacturing method if they want to be more accurate of production and a reduction in errors. This method can also reduce the average cost per unit by increasing the level of output or products sold. If the Marinez Company wanted to employ the labor intensive manufacturing method it should be employed when flexibility is key. If the products are meeting a different level of customer or consumer demands this would be the best method to us e. This is also used when actual labors are involved with the production like a service versus a product and the employee can physically check the demand of the consumer and change the level of need as necessary. For products versus services the products can be customized from what a customer prefers or demands as rise up as feedback on production can occur.ReferenceKimmel, P.D. Weydandt, J.J., and Kieso, D.E. (2011) accounting Toolsfor business decision making (4th ed.). Hoboken NJ John Wiley and Sons.