Answer:
24,000 units
Explanation:
We know,
According to the contribution margin approach,
Operating Income (EBIT) = Sales - Variable cost - Fixed cost
or, EBIT = (Price x Quantity) - (Quantity x VC per unit) - Fixed cost
As there are two methods,
Method 1, Variable cost = $1.00/unit, Fixed cost = $17,000
Method 2, Variable cost = $1.50/unit, Fixed cost = $5,000
According to the Question, as both methods will yield same EBIT at the same output levels,
Method 1 EBIT = Method 2 EBIT
or, (Price x Quantity) - (Quantity x $1.00) - 17,000 = (Price x Quantity) - (Quantity x $1.50) - $5,000
or, (Quantity x $1.50) - (Quantity x $1.00) = $(17,000 - 5,000) [Deducted (price x quantity from both the sides]
or, $0.50 x Quantity = $12,000
or, Quantity = $12,000/$0.50
Hence, Quantity = 24,000 units
At 24,000 output level, the EBIT of both methods will be same.
