Asked by Matthew Flint on May 01, 2024
Verified
The local convenience store makes personal pan pizzas. Currently, their oven can produce 55 pizzas per hour. It has a fixed cost of $4,000, and a variable cost of $0.31 per pizza. The owner is considering a bigger oven that can make 90 pizzas per hour. It has a fixed cost of $6,200, 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 29,000 pizzas, should he get the new oven?
Variable Cost
Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.
Fixed Cost
Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance premiums.
- Learn the concept of breakeven analysis and its significance in the formulation of business decisions.
- Assess and grasp the consequences of fixed and variable expenditures on profit margins.
Verified Answer
KM
Kristian MaustMay 03, 2024
Final Answer :
(a) The crossover is where $4,000 + .31X = $6,200 + .20X. Simplifying, 0.11X = 2200, or X = 20,000 units (b) yes, buy the bigger oven.
Learning Objectives
- Learn the concept of breakeven analysis and its significance in the formulation of business decisions.
- Assess and grasp the consequences of fixed and variable expenditures on profit margins.
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