Asked by Moses Amoxx on Jul 09, 2024
Verified
The local convenience store makes personal pan pizzas. Currently, their oven can produce 60 pizzas per hour. It has a fixed cost of $2,500, and a variable cost of $0.28 per pizza. The owner is considering a bigger oven that can make 85 pizzas per hour. It has a fixed cost of $3,200, but a variable cost of $0.21 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 production or business activity.
Fixed Cost
Costs that do not change with the level of production or business activity, such as rent, salaries, and insurance.
- Gain insight into the notion of breakeven analysis and its application in determining business strategies.
- Analyze and apprehend the impact that fixed and variable charges have on financial gain.
Verified Answer
DM
David MilbourneJul 15, 2024
Final Answer :
(a) The crossover is where $2,500 + .28X = $3,200 + .21X. Simplifying, 0.07X = 700, or X = 10,000 units (b) no, stay with the current oven.
Learning Objectives
- Gain insight into the notion of breakeven analysis and its application in determining business strategies.
- Analyze and apprehend the impact that fixed and variable charges have on financial gain.
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