For a table manufacturing company, selling price for a table is $161.00 per Unit

Question

For a table manufacturing company, selling price for a table is $161.00 per Unit, Variable cost is $25.00 per Unit, rent is $3,531.00 per month and insurance is $285.00 per month. Company wants to expand its business and improve the table quality, it wants to increase the selling price for a table to $290.00 per Unit, Variable cost to $57.00 per Unit, bigger area will have rent $5,704.00 per month and insurance is $389.00 per month At what point will the company be indifferent between the current mode of operation and the new option?

Explanation / Answer

Let, the quantity at indifference point = X

Then,

For current operation:

Profit = (161-25)*X - (3531 + 285)

For new operation:

Profit = (290-57)*X – (5704+389)

At indifference point,

(161-25)*X - (3531 + 285) = (290-57)*X - (5704+389)

136X – 3816 = 233X – 6093

X = (6093-3816)/(233-136)

X = 23.47 units or 23 units to make both the options to be indifferent.

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