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

What it is

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.

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.