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The cost structure of two firms competing

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The cost structure of two firms competing in the same industry is represented by the following cost formulas: Company X = $1,420,000 + $34/ unit; Company Z = $860,000 + $66/unit. The selling price is $120 per unit for both companies.

Required:

Calculate the indifference point between the two cost structures, that is, the amount of unit sales that produce exactly the same operating income for Company X and Company Z. If sales volume were expected to increase by 25% over the next two years, which cost structure would you prefer? Why?

Reference no: EM13912237

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