Inland Sports, an outdoor sports retailer, is planning to add a Web site for online sales. The estimated costs of two alternative approaches are as follows

	Alternative 1	Alternative 2
Annual fixed cost	$205,000	$295,000
Variable cost per order	$11	$9
Expected number of orders	70,000	70,000

At the expected level of orders, which online approach has the lower cost?

Begin by calculating the total expected cost of each alternative given the expected number of orders.

	Alternative 1	Alternative 2
Total expected cost of 70,000 orders

At the expected level of orders, ALTERNATIVE 1 / ALTERNATIVE 2 has the lower cost.

What is the indifference level of orders, or the "break-even" level of orders? What is the meaning of this level of orders?

Begin by determining the formula needed, and then enter the amounts to determine the indifference level in number of orders.

Begin by determining the formula needed, and then enter the amounts to determine the indifference level in number of orders.

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Indifference level in orders

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What is the meaning of this level of orders?

At the number of orders calculated in the preceding step (the indifference level):

A. Alternative 1 is less costly than Alternative 2

B. Alternative 1 is more costly than Alternative 2

C. The Alternatives are equivalent

If order levels are expected to be below the indifference level, then

A. Alternative 1 would have lower costs because fixed costs are lower

B. Alternative 2 would have lower costs because fixed costs are lower

C. The Alternatives would be equivalent

If orders are expected to be greater than the indifference level, then

A. Alternative 1 would have lower costs because variables costs are lower.

B. Alternative 2 would have lower costs because variables costs are lower.

C. The Alternatives would be equivalent