Indifference point

The indifference point is the output level at which two competing cost structures produce equal total cost or operating profit; above it the option with lower variable costs is preferred, below it the option with lower fixed costs wins.

ByHoang TruongUpdated July 3, 2026

FrameworkRelevant costing

See it move

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Option A costs €80,000 fixed plus €12 per unit; Option B costs €200,000 fixed plus €5 per unit. Setting the two totals equal gives 80,000 + 12Q = 200,000 + 5Q, so Q ≈ 17,143 units. Below that volume Option A's lower fixed cost wins; above it Option B's lower variable cost per unit makes it cheaper overall.

Where it fits

SubjectCost AccountingAdvancedTopicCost-Volume-Profit AnalysisAdvancedTopicRelevant Costs & Decision-MakingAdvanced

The formula

LaTeX

Q^{*} = \dfrac{FC_{B} - FC_{A}}{VC_{A} - VC_{B}}

Variables

$Q *$: Indifference quantity (output level at which total costs are equal under both options) (units)
$F C_{A}$: Total fixed costs under option A (the lower fixed-cost option) (€)
$F C_{B}$: Total fixed costs under option B (the higher fixed-cost option) (€)
$V C_{A}$: Variable cost per unit under option A (the higher variable-cost option) (€ per unit)
$V C_{B}$: Variable cost per unit under option B (the lower variable-cost option) (€ per unit)

Derived by setting FC_A + VC_A × Q = FC_B + VC_B × Q and solving for Q; above Q* the option with lower variable cost per unit has lower total cost.

Check yourself

PracticeCORE

A manufacturer is choosing between two production methods. Method X has annual fixed costs of €60,000 and variable costs of €18 per unit. Method Y has annual fixed costs of €140,000 and variable costs of €8 per unit. At what annual output level are the total costs of the two methods equal?

Select an answer to check your understanding.