Red Cat Firecrackers is considering whether to build a large or small factory to produce firecrackers. Regardless
Question:
Red Cat Firecrackers is considering whether to build a large or small factory to produce firecrackers. Regardless of the production method, each bundle of firecrackers sells for $4.00. If the large factory is chosen, then the variable cost per bundle of firecrackers will be $0.50, while the fixed costs will be $300,000 and the annual depreciation and amortization will be $100,000. If the small factory is chosen, then the variable cost per bundle of firecrackers will be $1.75, while the fixed costs will be $100,000, and the annual depreciation and amortization amount will be $10,000. Calculate the number of firecracker bundles for which the accounting operating profit is the same for either factory.
Step by Step Answer:
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates