Point of Indifference

This analysis is for graduate level Operations Managment course.

Consider the mathematical model for point of indifference:

Company XYZ is considering a location move. The selling price of $10 per customer will stay the same. The company's goal is to make money now and in the future.

Current State: Fixed Cost $2,000, Variable Cost $5
Future State: Fixed Cost $12,000, Variable Cost $2

1. How many customers do you need to invest in the new fixed cost of $12,000 and move to the new location?

2. What is the difference between a breakeven point model and the point of indifference model?

© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/accounting/point-of-indifference-7ejm

Solution Preview

...oint model and the point of indifference model?

1 - Formula used - Fixed Cost of A + Variable Cost of A * Factor X = Fixed cost of B + Variabel cost of B * Factor X

2000 + 5x = 12000 +2x
5x-2x = 12000 - 2000
3x = 10000
x=3333

2 -

The point of indifference model by definition is the judging of two options where there is no constant error of either overestimation or under estimation. This model looks at two defined options to see what the best way to move forward is. This can be done by looking at factors such as fixed cost, variable ...