Problem

Operating leverage The cost structure of two firms competing in the same industry is...

Operating leverage The cost structure of two firms competing in the same industry is represented by the following cost formulas: Company X 5 $1,420,000 1 $34/ unit; Company Z 5 $860,000 1 $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?

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