Answer:
Process A= from 10,001 to 19,999
Process B= 20,001 to infinity
Process C= from 0 to 9,999
Explanation:
Giving the following information:
Process A has a fixed cost of $200,000 and a variable cost of $40 per unit.
Process B has a fixed cost of $600,000 and a variable cost of $20 per unit.
Process C has no fixed cost since the item is purchased. It's variable cost is the purchase price of $60 per unit.
The general rule is that the lower the fixed costs, the fewer units are required to cover for costs. To determine the number of units for each process, we will compare process C to A, and then A to B.
Process C and A:
Process A= 200,000 + 40x
Process C= 60x
x= number of units
200,000 + 40x= 60x
200,000= 20x
10,000 = number of units
<u>The indifference point is 10,000 units. From 0 to 9,999; process C is more convenient.</u>
Process A and B:
Process A= 200,000 + 40x
Process B= 600,000 + 20x
200,000 + 40x = 600,000 + 20x
20x= 400,000
x= 20,000
The indifference point is 20,000 units. From 10,001 to 19,999; process A is more convenient.
