Question # 5

My company plans to produce a new product, a wireless computer mouse. Two machines can be used to make the mouse, Machines A and B. The price per mouse will be $24.00 regardless of which machine is used. The fixed and variable costs associated with the two machines are shown below. At the expected sales level of 95,000 units, how much higher or lower will the firm's expected EBIT be if it uses Machine B with high fixed costs rather than Machine A with low fixed costs, i.e., what is EBIT_B - EBIT_A?

	Machine A	Machine B
Price per mouse (P)	$24.00	$24.00
Fixed costs (F)	$100,000	$400,000
Variable cost/unit (V)	$15.00	$9.00
Exp. unit sales (Q)	95,000	95,000

a. -$300,000

b. $570,000

c. -$870,000

d. $270,000

e. $50,000