Cost indifference point and price indifference point Cortez Company is evaluating two methods of producing a new product which it plans to market next year. The product will require construction of a new production facility. Plan 1 uses sophisticated metal forming, shearing, and drilling machines in the production process. Plan 2 relies on skilled labor with many more manual operations. Plan 1 requires a much heavier commitment of fixed costs, but it has a lower variable production cost. Management expects to sell 25,000 units of the new product the first year of production at a price of $80 a unit. Below are estimated cost data for the two production plans:

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Plan 1 Plan 2 Variable costs: Direct materials Direct labor.. $20 17 $22 Variable overhead 8 Variable marketing, distribution, and admin. 5 855 8 5 5 Annual fixed costs: Depreciation, equipment $70,000 $200,000 Depreciation, production facilities 90,000 120,000 Other fixed overhead ...... 20,000 30,000 Marketing, distribution, and administration 90,000 90,000