Question

Alternative F has fixed costs of $18000 per year and a variable costs of $16 per unit. Alternative G has fixed costs of $23000 per year and variable costs of $6 per unit. How many units must be produced each year in order for the two alternatives to break even?

Answer 1

Answer:

500 units a year is the indifference point

Explanation:

Giving the following information:

Alternative F has fixed costs of $18000 per year and a variable cost of $16 per unit. Alternative G has fixed costs of $23000 per year and variable costs of $6 per unit.

First, we need to formulate the total cost formula for each alternative:

Alternative F:

Total cost= 18,000 + 16x

Alternative G:

Total cost= 23,000 + 6x

Now, we determine the indifference point by isolating X on each alternative:

18,000 + 16x = 23,000 + 6x

10x=5,000

x= 500 units

500 units is the indifference point.

Alternative F= 18,000 + 16*500= $26,000

Alternative G= 23,000 + 6*500= $26,000