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

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.)

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.

Cheap Stay Inc. is considering building a budget hotel that offers clean small rooms with bathrooms. They anticipate that the 120 rooms will rent for 36,000 room-nights per year. The market price for equivalent rooms is $60 per night. Cheap Stay estimates that the cost of capital will be $7,900,000 and they would like an annual return on 15%. Following are the estimated annual operating costs:

Variable operating costs $18 per room night

Fixed Costs:

Salaries and wages $450,000

Building maintenance 86,000

General administration 230,000

Total fixed costs $766,000

REQUIRED:

1. What is the full cost per room-night?

2. Can Cheap Stay Inc. meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.

3. A tour operator has offered $30 per room per night for 20 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Cheap Stay Inc. accept this offer?

R& V Hotel is consistently incurring losses for the past 2 years though the sales clerk receives customer orders, raises sales invoices at a higher price and processes payments for customers. Hotel customers have contracted prices, however online trade prices automatically loaded in to the system but the Brenda clerk used to amend manually. Mr. Zakariya an internal auditor found some deficiencies, who has taken some necessary actions to cross check those invoices and employees responsibilities and suggested the management immediately to prevent from loss of customers and good will of the hotel.
Based on the above scenario:
1. How the internal audit for R and V hotel can be helpful in resolving the issues they are confronting at the moment? Justify your answer practically
2. If you were Mr. Zakariya, prepare doable audit plan that Mr. Zakariya that you can use for the company and provide recommendations on how to overcome the deficiencies cited in the case?

You are considering opening a drive-in movie theater and running it for ten years. You have spent after-tax $10,000 researching the land that will be used for theater, but if you take the project you expect to incur another immediate after-tax expense of $20,000 as you work with a consulting firm to decide how to most efficiently run the business.

The project entails an immediate $100,000 capital expenditure, which can be depreciated over 10 years. You expect to sell this capital investment for $25,000 at the end of the ten year project. Working capital expenses for the project are $50,000 immediately, $40,000 incurred two years from today, both of which are fully recovered in ten years (at the end of the project).

The project’s operating costs are expected to be $100,000 for each of the first five years and then (starting between t=5 and t=6) grow at -5% per year through the end of the project (i.e., through t=10). You expect the project’s revenues to start at $100,000 starting one year from today and remain constant for the life of the project.

1. (1 points) To determine the discount rate for the project, you have found an all-equity firm with a risk level similar to the company you’re starting. That firm’s equity has a standard deviation of returns of 35% and a correlation with the stock market of 0.8. The risk free rate is 4%, the expected market returns are 9.5% and the standard deviation of market returns is 28%. What is your estimated cost of capital?
2. (7 Points) You decide to use 10% as the project’s opportunity cost of capital (ignore your answer from part a). Your expected tax rate is 25%. What is the project’s NPV?
3. (2 points) You find out that the government is interested in buying the capital investment from you at the end of the project. Instead of selling it for $25,000 at the end of the project, the government will commit today to buying the capital from you for $75,000 post-tax ten years from today. You trust the government and think that this sale is risk free should you take the project. To what extent (if any) should the above information factor in to your decision regarding whether or not to open the theater? Does it change the NPV in any way, if so how? (hint: think of the capital investment as its own project – how will this affect the cash flows and/or the discount rate)

Suppose that a monopolist has a constant average total cost of production and marginal cost of production equal to $6, and has a demand for its product represented as

1. Calculate the total and marginal revenue for each quantity produced and sold
2. Find the profit-maximizing (optimal) quantity produced and sold and the price/unit.
3. Calculate the profit or loss at the optimal quantity of production and sales.

A manufacturer has recorded its cost of electricity (cost) and the total number of hours of machine use time (time) each week for a total of 52 weeks. Use the Mod7-1Data (Links to an external site.) to answer the following questions. USE α = 5%!

sample covariance=

sample correlation=

null hypothesis=

computed test statistic=

alternative hypothesis=

statistical conclusion=

What is the shape of a downstream oil and gas total cost curve and marginal cost curve, U-shaped or L-shaped? A graph illustration here will be a plus.

1. A cost that changes in total as output changes is a variable cost.

   True

   False

1. Managerial judgment is critically important in determining cost behavior.

   True

   False

1. The predetermined overhead rate is calculated at the beginning of the year by dividing the total estimated annual overhead by the total estimated level of cost driver

   True

   False

1. If actual overhead is greater than applied overhead, the variance is called underapplied overhead.

   True

   False

1.   The direct method of allocation recognizes all interactions among support departments.

   True

   False