As a result of many phases of trial and error, two methods for producing playing

Question

As a result of many phases of trial and error, two methods for producing playing cards have been identified by the Modest Mouse 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 = $2,000), but it would require greater variable costs ($1.40 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)?

5,000 decks

10,000 decks

15,000 decks

20,000 decks

25,000 decks

5,000 decks

10,000 decks

15,000 decks

20,000 decks

25,000 decks

Explanation / Answer

Indifference level:

Difference in fixed costs÷Diffence in variable costs per unit

= ($10,000-$2,000)÷($1.4-$1)

= 20,000 decks

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