Question

The owner of Brooklyn Restaurant is disappointed because the restaurant has been averaging 7,500 pizza sales per​ month, but the restaurant and wait staff can make and serve 10,000 pizzas per month. The variable cost​ (for example,​ ingredients) of each pizza is$1.55.Monthly fixed costs​ (for example,​ depreciation, property​ taxes, business​ license, and​ manager's salary) are $12,000 per month. The owner wants cost information about different volumes so that some operating decisions can be made.

Read the requirements

1.	Use the chart below to provide the owner with the cost information. Then use the completed chart to help you answer the remaining questions.
2.	From a cost​ standpoint, why do companies such as Brooklyn Restaurant want to operate near or at full​ capacity?
3.	The owner has been considering ways to increase the sales volume. The owner thinks that 10,000 pizzas could be sold per month by cutting the selling price per pizza from$6.25 a pizza to $5.75. How much extra profit​ (above the current​ level) would be generated if the selling price were to be​ decreased? (Hint: Find the​ restaurant's current monthly profit and compare it to the​ restaurant's projected monthly profit at the new sales price and​ volume.)

Requirement 1. Use the chart below to provide the owner with the cost information. Then use the completed chart to help you answer the remaining questions. ​(Enter total variable costs to the nearest dollar. Enter costs per​ pizza, price per​ pizza, and profit per pizza to the nearest​ cent.)

	Monthly pizza volume. . . . . . . . . . . .	6,000	7,500	10,000
	Total fixed costs. . . . . . . . . . . . . . . . .
	Total variable costs. . . . . . . . . . . . . .
	Total costs
	Fixed cost per pizza. . . . . . . . . . . . .
	Variable cost per pizza. . . . . . . . . . .
	Average cost per pizza. . . . . . . . . . .
	Selling price per pizza. . . . . . . . . . . .	$6.25	$6.25	$6.25
	Average profit per pizza. . . . . . . . . .

2.

Requirement 2. From a cost​ standpoint, why do companies such as

Brooklyn

Restaurant want to operate near or at full​ capacity?

Companies want to run at full capacity to better utilize the resources they spend on ▼(average, fixed ,variable costs.) The more units they​ produce, the▼( higher, lower )the▼( average fixed ,average variable, fixed, variable) cost per unit.

Requirement 3. The owner has been considering ways to increase the sales volume. The owner thinks that 10,000 pizzas could be sold per month by cutting the selling price per pizza from $6.25 a pizza to $5.75.

How much extra profit​ (above the current​ level) would be generated if the selling price were to be​ decreased? (Hint: Find the​ restaurant's current monthly profit and compare it to the​ restaurant's projected monthly profit at the new sales price and​ volume.)

Identify the profit formula and compute the monthly profit at the current and the new volume.

–

=

Monthly profit

7,500 pizzas

–

=

10,000 pizzas

–

=

Since the restaurant will generate			of $		, the owner should		the sales price to
	the volume.

Answer 1

solution:

1

estimation of the total and average costs

Monthly pizza volume	6000	7500	10,000
Total fixed costs	$12,000	$12,000	$12,000
Total variable costs	$9,300	$11,625	$15,500
Total costs	$21,300	$23,625	$27,500
Fixed cost per pizza	$2.00	$1.60	$1.20
Variable cost per pizza	$1.55	$1.55	$1.55
Average cost per pizza	$3.55	$3.15	$2.75
Selling price per pizza	$6.25	$6.25	$6.25
Average profit per pizza	$2.70	$3.10	$3.50

Working notes for the above answer is asunder

2
While we can understand that more extra pizzas the company performs later its fixed costs lower through pizza. Thus this will appear in reduction of the ordinary price per pizza which will occur in inverse proportion on the other hand as company delivers added pizza later its Average Earnings per pizza is raises. Extra commonly, cheaper fixed expenses mean higher earnings.

3
Hereabouts owner is analyzing ways to improve the businesses capacity of the Pizza. The owner believes that 10,000 pizzas could be traded per month by making the selling price per pizza from $6.25 to $5.75

Current Monthly Profit

= $3.10 x 7500

=$23,250

Monthly Profit with Lower Sales Price

=3.50-0.50*10,000

= $30,000

Difference

=30,000-23250

=6750

By decreasing the purchase price 50 cents, the owner would savings rises by $6750, hoping that volume improved.