Question

Janelle Heinke, the owner of Ha Peppasl, is considering a new oven in which to bake the firm's signature dish, vegetarian pizza. Oven type A can handle 22 pizzas an hour. The fixed costs associated with oven A are $20,000 and the variable costs are $3.00 per pizza. Oven B is larger and can handle 40 pizzas an hour. The fixed costs associated with oven B are $32,500 and the variable costs are $1.00 per pizza. The pizzas sell for $12.00 each a) The break-even point in units for oven type A- units (round your response to the nearest whole number)

Answer 1

In order to find break even point, where the profit is zero

Profit = Sales - Costs

Profit = Sales - (Fixed costs +Variable Costs)

As profit is zero, we have

Implies, Total Sales = Fixed Costs + Variable Costs

Break even Units X Selling Price per unit = Fixed Costs + (Variable Cost per unit X Break even units )

Break Even Units = Total Fixed Costs /(SP-VC)

where, SP = selling price per unit and VC = variable cost per unit

Given Data, For Type A

Fixed Costs = $20,000

VC = $3 per pizza

SP = $12 per pizza

So, Break Even Units = Total Fixed Costs /(SP-VC)

Break Even Units = 20000/(12-3)

Break Even Units = 20000/9

Break Even Units = 2222,222

Upon rounding off, The Answer for no.of Break Even Units of oven type A is 2222 units