Senate Inc.is considering two alternative methods for producing playing cards.Method 1 involves using a machine with a fixed cost (mainly depreciation)of $17,000 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)?
A) 24,960
B) 28,080
C) 24,000
D) 26,880
E) 28,320

Question

Quizplus · Accepted Answer

? 11ea856c_8b80_887f_9aec_f748cdfa145b_TB1222_00 ? EBIT = PQ - VQ - F Insert data for Methods 1 and 2,then set the 2 equations equal to one another,and then solve for Q. EBIT₁ = PQ - Q(V₁)- F₁ EBIT₂ = PQ - Q(V₂)- F₂ The PQs cancel,divide by -1,and we are left with: Q(V₁)+ F₁ = Q(V₂)+ F₂. This reduces to: Q(V₂ - V₁)= F₁ - F₂ Q = (F₁ - F₂)/(V₂ - V₁)= 24,000