Asked by Ethan Scofield on Jul 18, 2024
Verified
The local convenience store makes personal pan pizzas. Currently, their oven can produce 50 pizzas per hour. It has a fixed cost of $2,000, and a variable cost of $0.25 per pizza. The owner is considering a bigger oven that can make 75 pizzas per hour. It has a fixed cost of $3,000, but a variable cost of $0.20 per pizza.
a. At what quantity do the two ovens have equal costs?
b. If the owner expects to sell 9,000 pizzas, should he get the new oven?
Variable Cost
Costs that change in proportion to the level of activity or volume of production, such as materials and labor.
Fixed Cost
Expenses that do not change in relation to production volume, such as rent, salaries, and insurance premiums.
- Familiarize with the concept of breakeven analysis and how it influences business decision-making.
- Evaluate and understand the role of stable and variable costs in affecting net income.
Verified Answer
PK
Prajil KottoorJul 22, 2024
Final Answer :
(a) The crossover is where $2,000 + .25X = $3,000 + .20X. Simplifying, 0.05X = 1000, or X = 20,000 units (b) no, stay with the current oven.
Learning Objectives
- Familiarize with the concept of breakeven analysis and how it influences business decision-making.
- Evaluate and understand the role of stable and variable costs in affecting net income.
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