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Senate Inc

question 13

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Senate Inc. is considering two alternative methods for producing playing cards. Method 1 involves using a machine with a fixed cost (mainly depreciation) of $12,000 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 sale 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) ?

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Definitions:

Integer Optimization Models

Mathematical models used in operations research where the decision variables are constrained to be integers, often used in planning and allocation problems.

Binary Variables

Variables that can take on one of two possible values, typically represented as 0 or 1.

Scooter Rental

A service offering scooters for temporary use, typically charged per minute or hour, popular in urban transport for short distances.

Car Rental

A service industry that provides temporary automobiles for a short period, typically ranging from a few hours to a few weeks.

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