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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?

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facundobuzzetti

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.

abiolataiwo2015

At what volume would these locations have equal total costs is 50,000 units.

Using this formula

Total costs=Fixed costs/Variable costs per unit

Where:

Fixed costs=$150,000, $100,000

Variable costs per unit=$10, $9

Let plug in the formula

Total costs=($150,000-$100,000)/($10-$9)

Total costs=$50,000/$1

Total costs=50,000 units

Inconclusion at what volume would these locations have equal total costs is 50,000 units.

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