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 ($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

To find the level of output where both methods produce the same net operating income, set the total costs of both methods equal to each other and solve for the quantity of decks (Q).Method 1: Fixed costs = $10,000, Variable costs = $1.00/deckTotal cost = $10,000 + $1.00QMethod 2: Fixed costs = $5,000, Variable costs = $1.50/deckTotal cost = $5,000 + $1.50QSet the total costs equal to each other:$10,000 + $1.00Q = $5,000 + $1.50QSolving for Q:$5,000 = $0.50QQ = 10,000 decks

After an Intensive Research and Development Effort, Two Methods for Producing