Ethan, Inc. has seasonal demand for its products and management is considering whether level production or seasonal production should be implemented. The firms short-term interest cost is 8%, and management has developed the following information to make the decision:

	Alternative 1 Level production	Alternative 2 Seasonal production
Average inventory	$2,000,000	$1,500,000
Production costs	$6,000,000	$6,050,000

Which alternative should be accepted and how much is saved over the other alternative?

2. 
   

At what rate of short-term interest rate would the two alternatives have the same cost?

2.