Answer:
The indifference point is 3,000 units
Explanation:
Giving the following information:
All-purpose machine:
Fixed costs= $20,000 per year
Unitary variable cost= $40
Special-purpose machine:
Fixed costs= $50,000 per year
UNitary variable cost= $30
We need to determine the unit's production point where the two machines are indifferent. First, we need to structure the total cost formulas:
All-purpose= 20,000 + 40x
Special-purpose= 50,000 + 30x
x= number of units
Now, we equal them:
20,000 + 40x = 50,000 + 30x
10x = 30,000
x= 3,000
The indifference point is 3,000 units
<u>Prove:</u>
All-purpose= 20,000 + 40*3,000= $140,000
Special-purpose= 50,000 + 30*3,000= $140,000
