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kvasek [131]
3 years ago
6

Your firm can make a product in-house for $11.50 per unit using new production equipment which would cost $30,000. Your firm cou

ld alternatively purchase the same item for $16.25 per unit using a legal contract which will cost $2000 to create and negotiate. What is the approximate break-even point
Business
1 answer:
Nikolay [14]3 years ago
7 0

Answer:

The indifference point is 5,895 units

Explanation:

Giving the following information:

In-house:

Unitary variable cost= $11.5

Fixed cost= 30,000

Buy:

Unitary variable cost= $16.25

Fixed cost= 2,000

<u>To calculate the indifference point, we need to establish the total cost formulas for each option:</u>

In-house:

Total cost= 30,000 + 11.5x

x= number of units

Buy:

Total cost= 2,000 + 16.25x

x= number of untis

<u>Now, we equal both formulas and isolate x:</u>

30,000 + 11.5x = 2,000 + 16.25x

28,000 = 4.75x

5,895 = x

The indifference point is 5,895 units

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