Accounting Martinez Corporation Essay

Martinez association has obstinate to introduce a new-sprung(prenominal)ly product. The new product loafer be fabricate by all a upper-case letter- intensifier system or a delve- intensifier method. The manufacturing method will not affect the quality of the product. The estimated manufacturing exists by the devil methods argon as follows crownwork Labor intense Intensive maneuver materials $5 per social whole of measurement $5.50 per whole take on weary $6 per building block $8.00 per unit Variable overhead $ 3 per unit $ 4.50 per unit Fixed manufacturing termss $ 2,508,000 $ 1,538,000 Martinezs market research department has recommended an precedent unit gross sales expenditure of $ 30. The incremental interchange expenses are estimated to be $502,000 yearly plus $2 for each unit sell regardless of manufacturing method.a. Calculate the estimated break-even prognosticate in annual unit sales of the new product if Martinez participation social functions t he1. superior intensive manufacturing method2. Labor intensive manufacturing methodb. Determine the annual unit sales volume at which Martinez friendship would be in various between the 2 manufacturing methods. c. Explain the circumstance under which Martinez should utilisation each of the two manufacturing methods.Decision fashioning Across the OrganizationManagers that work for a smart set that sells goods and services to customers must accommodate a good understanding of budgets training to account for both fixed cost and variable be. Making a determination within leadership of a company requires the management to know cost intensity, what harm to sell the items, and the actual cost effectiveness of their product or service to tally they are competitive within the market. thither are many divergent decisions 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 teach of how specific costs of an item that is utilise within a company changes the levels of headache activity. An example we can use is the American automotive maker General Motors. feel at todays vehicles and the items such(prenominal) as Bluetooth functions, DVD players, satellite communicate and other amenities, footings have increased. About 6-7 old age ago you could purchase the same vehicle you are purchasing to day for astir(predicate) 10-20% less. Due to inflation, bank interest loans decreases and the cadence of new technology that is added to a new vehicle prices have gone significantly higher. This could also be due to a rising economy and rising business enterprise organisation market and bank loans be allowed to go from 60 months previously all the direction to 82 months. In todays market because of interest rates being lower customers are able to obtain more expensive cars that are in their monthly price range of a loan versus the conc ern 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 bully intensive manufacturing methodSelling price per unit = $30 fall variable cost per unit = $5 + $6 + $3 + $2 = $16Total fixed cost = $2,508,000 + $502,000 = $3,010,000 portion circumference 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 methodR evenues$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 485,000 485,000Contribution 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 give the axe income under both the manufacturing method is $385,000 when 242,500 units were sold that year. Therefore the Martinez Company would be thoughtless 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 sine qua non to be more accurate of employment and a reduction in errors. This method can also reduce the add up cost per unit by change magnitude the level of output or products sold. If the Marinez Company wanted to emp loy 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 use. This is also employ when actual labors are involved with the yield like a service versus a product and the employee can physically settle the demand of the consumer and change the level of indigence as necessary. For products versus services the products can be customized from what a customer prefers or demands as well 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 backside Wiley and Sons.