Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 1

Operating leverage 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 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?