The cost structure of two firms competing in the same industry is represented by the following cost formulas: Company X = $1,925,000 + $44/ unit; Company Z = $980,000 + $86/unit. The selling price is $136 per unit for both companies.
Required:
1. 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.
Indifference point volume: ____________ units
2. If sales volume were expected to increase by 25% over the next two years, which cost structure would you prefer?
______ company X
______company Z
Company X
Company Z