Question

The owner of

Brooklyn

Restaurant is disappointed because the restaurant has been averaging

5,000

pizza sales per​month, but the restaurant and wait staff can make and serve

8,000

pizzas per month. The variable cost​ (for example,​ingredients) of each pizza is

$1.35.

Monthly fixed costs​ (for example,​ depreciation, property​ taxes, business​ license, and​ manager's salary) are

$8,000

per month. The owner wants cost information about different volumes so that some operating decisions can be made.

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 8,000 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. . . . . . . . .	4,000	5,000	8,000
	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. . . . . . . . .

Answer 1

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	4,000	5,000	8,000
Total fixed costs	8000	8000	8000
Total variable costs.	5400	6750	10800
Total costs	13400	14750	18800
Fixed cost per pizza	$          2.00	$          1.60	$         1.00
Variable cost per pizza	$          1.35	$          1.35	$         1.35
Average cost per pizza	$          3.35	$          2.95	$         2.35
Selling price per pizza	$6.25	$6.25	$6.25
Average profit per pizza	$2.90	$3.30	$3.90
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 fixed costs. The more units they produce, the lower the average fixed cost per unit.
3.The owner has been considering ways to increase the sales volume. The owner thinks that 8,000 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.)
	Current	Projected
Units	5000	8000
Total Sales	$ 31,250.00	$ 46,000.00
Total Cost	$ 14,750.00	$ 18,800.00
Profit	$ 16,500.00	$ 27,200.00
The restaurant will generate an additional profit of (27,200 - 16,500)  $10,700, the owner should decrease the sales price to increase the volume.