Answer:
The indifference point is 290 services.
Explanation:
<u>Current location:</u>
Rent and utilities= $5,093
Salies= $5,924
Insurance= $1,370
Total fixed cost= $12,387
Contribution margin per unit= 116 - 4= $112
<u>New location:</u>
Rent and utilities= $11,944
Salies= $6,992
Insurance= $2,427
Total fixed costs= $21,363
Contribution margin per unit= 151 - 8= $143
<u>First, we need to structure the total income formula (y):</u>
Current location:
y= 112x - 12,387
New location:
y= 143x - 21,363
x= number of services
<u>Now, we equal both formulas and isolate x:</u>
112x - 12,387 = 143x - 21,363
31x =8,976
x= 289.55 = 290 services
The indifference point is 290 services.
Prove:
y= 112*290 - 12,387= $20,093
y= 143*290 - 21,363= $20,107
<u>The difference is due to round up.</u>
