Your company plans to produce a new product, a wireless computer mouse. Two machines can be used to make the mouse, Machines A and B. The price per mouse will be $25.00 regardless of which machine is used. The fixed and variable costs associated with the two machines are shown below. At the expected sales level of 75,000 units, how much higher or lower will the firm's expected EBIT be if it uses high fixed cost Machine B rather than low fixed cost Machine A, i.e., what is EBITB - EBITA?
A) $123,019
B) $136,688
C) $151,875
D) $168,750
E) $185,625

Question

Quizplus · Accepted Answer

Machine B has higher fixed costs but lower variable costs compared to Machine A. At 75,000 units, the savings in variable costs with Machine B outweigh the additional fixed costs, resulting in a higher EBIT by $168,750.

Your Company Plans to Produce a New Product, a Wireless