The cost structure of two firms competing in the same industry is represented by the following cost

Question:

The cost structure of two firms competing in the same industry is represented by the following cost formulas:

Company X = $1,350,000 + $37/unit;
Company Z = $825,000 + $72/unit.

The selling price is $140 per unit for both companies.


Required:

Calculate the indifference point between the two cost structures; that is, the amount of unit sales that produce the same operating income for Company X and Company Z. If sales volume were expected to increase by 20% over the next two years, which cost structure would you prefer? Why?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Accounting What the Numbers Mean

ISBN: 978-1260565492

12th edition

Authors: David Marshall, Wayne McManus, Daniel Viele

Question Posted: