After an intensive research and development effort, two methods for producing pl

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 (S1.40 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)? O5,000 decks ? 10,000 decks 12.500 decks O 20,000 decks O 25,000 decks

Explanation / Answer

CALCULATION OF THE INDIFFERENCE POINT Indiffernce point = Change in Fixed Cost / Change in Variable Cost Indiffernce point =( $ 10,000 - $ 5,000 ) / ($ 1.40 - $ 1.0 ) Indiffernce point =$ 5,000 / $ 0.40 Indiffernce point =$ 12,500 Answer =Option 3 = 12,500 Decks

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