Question

omework: 2-46A ewner thini

Answer 1

Answer 1:

Completed chart:

Answer 2:

Variable cost per unit of production remains same irrespective of production volume.

But fixed cost which remains constant for a relevant range of production level, goes on decreasing on a per unit basis as production level increases.

Due to this average total per unit cost decreases as production level increases and price remaining same, average profit per unit will increase as production level increases.

As we observe from table in answer 1 above, average profit per pizza increases from $2,65 to $3.61 when production increases from 6,500 units to 12,500 units.

Hence from cost standpoint owners want to operate near or at full capacity.

Answer 3:

Current monthly and projected monthly profits are calculated as below:

Hence:

Extra profit that would be generated if the selling price is decreased = $38,875 - $33,500 = $5375

Extra profit that would be generated if the selling price is decreased = $5375