Question

Location choice I has monthly fixed costs of $100,000 and per-unit variable costs of $10. Location choice J has monthly fixed costs of $150,000 and per-unit variable costs of $9. At what volume would these locations have equal total costs?

Answer 1

Answer:

The indifference point is 50,000 units.

Explanation:

Giving the following information:

Location choice I has monthly fixed costs of $100,000 and per-unit variable costs of $10. Location choice J has monthly fixed costs of $150,000 and per-unit variable costs of $9.

First, we need to determine the total cost formula for each location:

Location I:

Total cost= 100,000 + 10x

Location J:

Total cost= 150,000 + 9x

Now, to calculate the indifference point, we need to isolate X:

100,000 + 10x= 150,000 + 9x

x= 50,000 units

The indifference point is 50,000 units.