Question: An insurance company is evaluating a new software system designed
An insurance company is evaluating a new software system designed to reduce the time for claims processing. The fixed costs with the new system are $120,000 per year. The average variable costs with the new system are $20 per claim. The current system being used by the company has fixed costs of $80,000 and variable costs of $35 per claim. What is the indifference point between these two processes? If the company expects to process 3,500 claims per year, which process would you recommend? Why?
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