Question

A manufacturing company is considering two logistics system alternatives to market its goods to a new market. The two alternatives are likely to have the following cost structures for the goods that pass through them. Alt. 1 (Total Costs (Fixed = $14000; Variable per unit = $27]) Alt. 2 (Total Costs [Fixed - $ 5200; Variable per unit= $37]). What is the point of indifference between the two systems?

a. 880 (approximate)
b. 2320 (approximate)
c. 1100 (approximate)
d. 760 (approximate)
e. 615 (approximate)

Answer 1

The point of indifference between the two logistics systems is approximately 880 units.

Step-by-step explanation:

The point of indifference between the two logistics systems can be found by setting their total costs equal to each other and solving for the quantity of goods produced.

In the first alternative, the total cost is equal to the fixed cost of $14,000 plus the variable cost of $27 per unit.

In the second alternative, the total cost is equal to the fixed cost of $5,200 plus the variable cost of $37 per unit.

Setting these two total costs equal to each other:

$14,000 + $27Q = $5,200 + $37Q

Simplifying the equation:

$27Q - $37Q = $5,200 - $14,000

$-10Q = $-8,800

Dividing both sides by -10:

Q = 880

Therefore, the point of indifference between the two systems is approximately 880 units.