Question

P2-46A (similar to) E Question Help The owner of Brooklyn Restaurant is disappcinted because the restaurant has been averaging 10,000 pizza sales per month, but the restaurant and wait staff can make and serve 12,500 pizzas per month. The variable cost (for example, ingredients) of each pizza is $1.50. Monthly fixed costs (for example, depreciation, property taxes, business license, and manager's salary) are $11,000 per month. The cwrier wants cost information abcut different volumes so that some operating decisions can be made. Read the requirements. Requirement 1. Use the chart below to provide the ownor with the cost information. Then use the complotod chart to help you answor 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............ O Requirements 5,500 10,000 12,500 Total fixed costs .. 1. Use the chart below to provide the owner with the cost information. Then use the complotod chart to help you anwor the romaining questions. Total variable costs Total costs 2. From a cost standpoint, why do companies such as Brooklyn Restaurant want to operete near or at full capacity? The owner has been considering ways to increese the seles volume. The owner thinks that 12,500 pizzas could be sold per month by cutting the selling price per pizza from $8.25 a pizza to $5.75. How much extra profit (above the current leve 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.) 3. Fixed cost per pizza uld be Variable cost per pizza......... Average coet per pizza Selling price per pizza 6.25 $ 6.25 S 6.25 Print Done Average profit per pizza

Answer 1

Correct Answer:

Monthly Pizza Volume	5500	10000	12500
Total Fixed Cost	$ 11,000.00	$ 11,000.00	$ 11,000.00
Total Variable cost	$    8,250.00	$ 15,000.00	$ 18,750.00
Total cost	$ 19,250.00	$ 26,000.00	$ 29,750.00
Fixed cost per pizza	$            2.00	$            1.10	$            0.88
Variable cost per pizza	$            1.50	$            1.50	$            1.50
Average cost per pizza	$            3.50	$            2.60	$            2.38
Selling price per pizza	$            6.25	$            6.25	$            6.25
Average profit per pizza	$            2.75	$            3.65	$            3.87

2: Company such as Brooklyn Restaurants wants to operate near or at full capacity because it reduces the fixed cost per unit, which helps in increasing the profit margin.

3: Extra profit of $ 5,625 can be earned if the selling price is reduced to $ 5.75

	Actual	Projected
Monthly Pizza Volume	10,000.00	12,500.00
Total Fixed Cost	$      11,000.00	$    11,000.00
Total Variable cost	$      15,000.00	$    18,750.00
Total cost	$      26,000.00	$    29,750.00
Fixed cost per pizza	$                 1.10	$              0.88
Variable cost per pizza	$                 1.50	$              1.50
Average cost per pizza	$                 2.60	$              2.38
Selling price per pizza	$                 6.25	$              5.75
Average profit per pizza	$                 3.65	$              3.37
Total profit	$      36,500.00	$    42,125.00
Increase in profit		$      5,625.00

End of answer.

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