Operations Management: Calculating Point of Indifference
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Questions and Answers

What is the purpose of equating total revenue with total cost in breakeven analysis?

To find the volume at which profit is zero

What happens to profit when the volume of production is above the breakeven point?

Profit is made

What is the formula for total revenue in terms of price, volume, and variable cost?

TR = q × p

What is the formula for total cost in terms of fixed cost, variable cost, and quantity?

<p>TC = FC + q × vc</p> Signup and view all the answers

What is the breakeven quantity in Example 1, and what is the calculated value?

<p>The breakeven quantity is 250 customers, calculated by dividing the total fixed cost by the difference between the unit price and variable cost.</p> Signup and view all the answers

What is the variable cost per unit in Example 2, and what is the total fixed cost?

<p>The variable cost per unit is $4, and the total fixed cost is $141,000.</p> Signup and view all the answers

What is the purpose of calculating the breakeven point in production planning?

<p>To determine the minimum quantity required to avoid losses</p> Signup and view all the answers

What is the relationship between total revenue and total cost at the breakeven point?

<p>Total revenue equals total cost</p> Signup and view all the answers

How does an increase in fixed cost affect the breakeven point?

<p>It increases the breakeven point</p> Signup and view all the answers

What is the importance of knowing the breakeven point in manufacturing systems?

<p>It helps in determining the production volume to achieve profitability</p> Signup and view all the answers

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