Question

After an intensive research and development effort, two methods for producing playing cards have been identified by the Turner Company. One method involves using a machine having a fixed cost of $10,000 and variable costs of $1.00 per deck of cards. The other method would use a less expensive machine (fixed cost = $5,000), but it would require greater variable costs ($1.50 per deck of cards). If the selling price per deck of cards will be the same under each method, at what level of output will the two methods produce the same net operating income (EBIT)? A. 5,000 decks B. 10,000 decks C. 15,000 decks D. 20,000 decks E. 25,000 decks

Answer 1

Answer:

A. 10,000 decks

Explanation:

In this we use the equation which is shown below:

Les us assume the selling price be X and the Quantity sold be Y

So,

EBIT = Y × X - Y × $1.00 - $10,000

EBIT =  Y × X - Y × $1.50 - $5,000

If we solve this two - equation

Y × X - Y × $1.00 - $10,000 = Y × X - Y × $1.50 - $5,000

Y × $1.00 - $10,000 = Y × $1.50 - $5,000

Then, the quantity would be 10,000 decks