Nagle Electric, Inc., of Lincoln, Nebraska, must replace a robotic Mug welder an

Question

Nagle Electric, Inc., of Lincoln, Nebraska, must replace a robotic Mug welder and is evaluating two alternatives. Machine A has a fixed cost for the first year of $87,000 and a variable cost of $19, with a capacity of 13,000 units per year. Machine B is slower, with a speed of one-half of A's, but the fixed cost is only $65,000. The variable cost will be higher, at $23 per unit. Each unit is expected to sell for $30. What is the crossover point (point of indifference) for the two machines? The crossover point for the two machines is units. (Round your response to the nearest whole number.)

Explanation / Answer

At the idifference point , total costs associated with the two alternatives are equal.

Indifference point = difference in fixed cost / difference in variable cost

= (87000-65000)/(23-19)

= 22000/4

= 5500 units.

therefore point of indifferencr for the two machine is at 5500 units.

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