The Congress Company has identified two methods for producing playing cards. 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

Question

Quizplus · Accepted Answer

The two methods will produce the same net operating income when the total costs are equal. Set the equations for total cost equal: $10,000 + $1.00x = $5,000 + $1.50x. Solving for x gives 10,000 decks.

The Congress Company Has Identified Two Methods for Producing Playing