What is the Indifference Point in the following situation? Smith Brothers has fixed costs of $200,000...
What is the Indifference Point in the following situation? Smith Brothers has fixed costs of $200,000 and variable costs of $3.5 per unit. Their potential supplier has fixed costs of $150,000 and variable costs of $3.75 per unit. a. 175,000 units b. 900,000 units c. 250,000 units d. 200,000 units
Homework Answers
Answer : d. 200,000 units
Note : To calculate indifference point between Smith Brothers and Potential Suppliers use the following formula :
Total cost associated with Smith brothers = Total cost associated with potential supplier
Fixed cost + Variable cost = Fixed cost + Variable cost
200,000 + 3.5 Q= 150,000 + 3.75 Q
0.25 Q = 50,000
Q = 200,000 units
Hence, Indifference point in the following situation = 200,000 units.
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