Answer:
Instructions are below.
Explanation:
Giving the following information:
Proposal A:
Fixed costs= $57,000
Variable cost per unit= $12
Proposal B:
Fixed costs= $31,000
Variable cost per unit= $16
A) First, we need to determine the cost formula for each proposal:
Proposal A= 57,000 + 12*x
Proposal B= 31,000 + 16*x
Now, to calculate the indifference point we need to equal both formulas and isolate X (number of units).
57,000 + 12x = 31,000 + 16x
26,000 = 4x
6,500= x
The indifference is 6,500 units. We can corroborate.
Proposal A= 57,000 + 12*6,500= $135,000
Proposal B= 31,000 + 16*6,500= $135,000
B) We need to determine the cheapest option at 4,600 units.
Proposal A= 57,000 + 12*4,600= $112,200
Proposal B= 31,000 + 16*4,600= $104,600
At this level of units, the best option is Proposal B.