Indifference Point Homework Help
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In order to be good in finance, it is necessary to understand the nitty-gritty of the subject. Finance as a subject is vast and comprises of various topics. In accounting, one such topic exists called indifference point which is particularly tricky and also crucial to understand. In an organisation, managers use multiple tools to identify and choose between various alternative cost structures. One such tool is indifference point. Thus, it becomes important to understand indifference point, and with indifference point homework help, this can be achieved.
What is indifference point?
Indifference point is defined as the stage at which total cost and profits are the same under two cost structures. It is the point at which there is no difference between the two alternative methods. Indifference point is mostly used to compare and analyse between two strategies.
With indifference point assignment help, you can understand it in simpler terms. Let’s assume that there are two methods of production. It is possible that at one level of production, one strategy is better than the other. The level at which the shift is made from the inferior method to the superior one is known as indifference point of cost.
It is calculated as:
Indifference point of cost =differential fixed cost/ differential variable cost per unit
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An example of indifference point:
Let’s say alternative A has a fixed cost of $12000 and a variable cost of $3.5 p.u. and B has a fixed cost of $36000 and a variable cost of $2 p.u.
Therefore, indifference point of costis given by= 24000/1.5= 16000 units.
How is indifference point different from breakeven point?
When you are studying indifference point, it is essential that you understand the difference between that and breakeven point. Cost indifference involves equating two total cost of differential fixed cost by differential variable cost. Also, it is a stage at which cost lines of any two planes intersect each other. Indifference point of cost compares the cost of two alternatives.
Breakevenpoint, on the other hand, involves the intersection of total cost line and total revenue line of a particular alternative. Its analysis compares the total cost and revenue of a single product or any form of service.
You can understand their difference more elaborately with indifference point assignment help.
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