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. Instructions With the class divided into groups, answer the following.

Question 1: Calculate the estimated break-even point in annual unit sales of the new product if Martinez Company uses the:

1. Capital-intensive manufacturing method.

2. Labor-intensive manufacturing method.

Question 2: Determine the annual unit sales volume at which Martinez Company would be indifferent between the two manufacturing methods.

Question 3: Explain the circumstance under which Martinez should employ each of the two manufacturing methods. (CMA adapted)