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    Cost Indifference Point

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    cswethitha07
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    Cost Indifference Point

    Uploaded by

    cswethitha07
    1 views4 pages
    CIP

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    © © All Rights Reserved

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    CIP

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    1 views4 pages

    Cost Indifference Point

    Uploaded by

    cswethitha07
    CIP

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    COST INDIFFERENCE POINT

    A firm wants to replace one of its existing machines. Two alternative machines - Machine A and Machine B are under consider
    The costs associated with these alternatives are as follows:

    MACHINE A MACHINE B
    Variable cost per unit (₹) 50 10
    Total Fixed Cost per annum (₹) 50000 150000

    You are required to:


    (i) Calculate the cost indifference point.
    (ii) Suggest the most economical alternative machine to replace the existing one when the expected level of annual production
    (a) 5,000 units (b) 1,000 units

    COST INDIFFERENCE POINT (units) 2500 (Difference in fixed cost)÷(Difference in variable cost per unit)

    MACHINE A
    UNITS PRODUCED TOTAL VARIABLE COST TOTAL FIXED COST TOTAL COST (A)
    0 0 50000 50000
    500 25000 50000 75000
    1000 50000 50000 100000
    1500 75000 50000 125000
    2000 100000 50000 150000
    2500 125000 50000 175000
    3000 150000 50000 200000
    3500 175000 50000 225000
    4000 200000 50000 250000
    4500 225000 50000 275000
    5000 250000 50000 300000
    5500 275000 50000 325000
    6000 300000 50000 350000
    6500 325000 50000 375000
    7000 350000 50000 400000
    7500 375000 50000 425000
    8000 400000 50000 450000

    Machine A vs Machine B
    500000
    450000
    400000
    350000
    300000 Cost Indifference Point Choose B
    250000 (units) 6
    Cost

    200000
    150000
    Choose A
    100000
    50000
    0
    0 1000 2000 3000 4000 5000 6000 7000 8000

    Units
    250000 6

    Co
    200000
    150000
    Choose A
    100000
    50000
    0
    0 1000 2000 3000 4000 5000 6000 7000 8000

    Units

    TOTAL COST (A) TOTAL COST (B)


    OST INDIFFERENCE POINT
    ine A and Machine B are under consideration.

    the expected level of annual production is:

    (Difference in variable cost per unit)

    MACHINE B
    TOTAL VARIABLE COST TOTAL FIXED COST TOTAL COST (B)
    0 150000 150000
    5000 150000 155000
    10000 150000 160000
    15000 150000 165000
    20000 150000 170000
    25000 150000 175000
    30000 150000 180000
    35000 150000 185000
    40000 150000 190000
    45000 150000 195000
    50000 150000 200000
    55000 150000 205000
    60000 150000 210000
    65000 150000 215000
    70000 150000 220000
    75000 150000 225000
    80000 150000 230000

    vs Machine B

    Choose B

    4000 5000 6000 7000 8000 9000

    Units
    4000 5000 6000 7000 8000 9000

    Units

    A) TOTAL COST (B)

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