Senate Inc. is considering two alternative methods for producing playing cards.

Question

Senate Inc. is considering two alternative methods for producing playing cards. Method 1 involves using a machine with a fixed cost (mainly depreciation) of $15,000 and variable costs of $1.00 per deck of cards. Method 2 would use a less expensive machine with a fixed cost of only $5,000, but it would require a variable cost of $1.50 per deck. The sales price per deck would be the same under each method. At what unit output level would the two methods provide the same operating income (EBIT)? 20,600 19,600 20,000 23,200 15,200

Explanation / Answer

Cost1 = $15000 + x * $1.00

Cost2 = $5000 + x * $ 1.50

Thus ., Cost1 = cost2 => x = 20,000 Answer

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