Plymouth Corp.sells units for $100 each.Variable costs are $75 per unit,and fixed costs are $200,000.If Plymouth leases a new machine,fixed costs will increase by $60,000 a year,but production will be more efficient,saving $5 per unit.At what level of production will Plymouth be indifferent between leasing and not leasing the new machine?
A)5,000
B)10,000
C)10,400
D)12,000

Question

Quizplus · Accepted Answer

To find the indifference point, set the total costs equal for both scenarios. Without leasing: Total Cost = $200,000 + $75x. With leasing: Total Cost = $260,000 + $70x. Set them equal: $200,000 + $75x = $260,000 + $70x. Solving for x gives x = 12,000 units.