Question

The owner of Brooklyn Restaurant is disappointed 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 or example, ingredients) of each pizza is $1.50. Monthly fixed costs (for example, depreclation, property taxes, business license, and managers salary) are $11,000 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.) Monthly pizza volume 5,500 10,000 12,500 Total fixed costs Total variable costs Total costs 11,000 $ 8,250 19250 11,000 $ 15,000 26000 11,000 18,750 29750 Fixed cost per pizza Variable cost per pizza Average cost per pizza 1.50 1.50 1.50 6.25 $ Selling price per pizza Average profit per pizza 6.25 $ 6.25

Answer 1

1)

monthly pizza volume	5500	10,000	12,500
total fixed cost	$11,000	$11,000	$11,000
total variable cost	8250	15,000	18,750
total cost	$19,250	$26,000	$29,750
fixed cost per pizza=fixed cost/monthly pizza volume	$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(selling price-avg cost per pizza)	$2.75	$3.65	$3.87

2) the company want to operate at near or full capacity for reducing the fixed cost per pizza

if you increase pizza volume it will reduces the fixed cost per pizza ,if fixed cost reduced the company average profit will increase.

3) if selling price decrease from 6.25 to 5.75 what is the extra  profit at 12,500 volume

average profit if selling price decreased from 6.25 to 5.75 at 12,500

= $5.75- 2.38=$3.37

= profit at current level - profit at projected pizza new sales and price

= ($3.65*10000 )- (3.37*12,500)

$36500-42125

=$5625 (answer)