Question

. Two options are under consideration for a machine that makes hard candy. Machine A has fixed cost of 8,901 and a variable cost of 0.45 per pound. Machine B has a fixed cost of 7,599 and a variable cost of 0.52 per pound. At what production amount (pounds) is the total cost of each machine equal?

Answer 1

Answer:

At 18,600 pounds, cost of both the machines would be equal

Explanation:

At Indifference point of production amount (pounds), the total cost of each machine will be equal .

Indifference Point is calculated as: Change in Fixed Costs/Change in Variable Costs

Indifference Point = (8901 - 7599) / (0.52 - 0.45)

= 1302 / 0.07

= 18,600 pounds

At 18,600 pounds, cost of both the machines would be equal