Question

Ping-Aye Tropical Fruits Company must choose between two transportation options: a contractual arrangement with a local carrier that costs $4,500 upfront plus $250 for each shipment, or leasing its own refrigerated trucks which will cost $20,000 plus $45 for each shipment. What is the indifference point

Answer 1

Answer:

The indifference point is 68 shipments.

Explanation:

First, we need to establish the total cost formula:

Local carrier:

Total cost= 4,500 + 250*x

Leasing:

Total cost= 20,000 + 20*x

x= number of shipments

Now, we equal both formulas and isolate x:

4,500 + 250x = 20,000 + 20x

230x = 15,500

x= 67.39 = 68

The indifference point is 68 shipments.