Question

Assume Domino’s Pizza is considering offering a new product – a 6 inch pizza. Why would it matter if Domino’s Pizza knows how much it costs to produce and deliver this 6 inch pizza? What are the three categories of manufacturing costs involved?  

Answer 1

The cost of pizza helps in decision making like profitability analysis and pricing decisions. Hence the firm would like to know the cost of pizza. It also helps in break even analysis and cvp analysis. The cost structure has to be divided into fixed cost and variable cost. The variable cost is the cost which is direct material, direct labor and variable manufacturing overhead. It varies at per unit level of production. Fixed manufacturing overhead are the costs which are fixed in nature. The higher the production the lower is the fixed cost per unit.

3 categories of manufacturing cost involved

1. Direct material- All the raw material and packing material required for manufacture and delivery of pizza

2. Direct labor – All the labor involved in production of pizza

3. Manufacturing overhead. These are the overheads which facilitate the production. It includes

• · Indirect material
• · Indirect labor
• · Depreciation of Equipments
• · Supervisor salaries
• · Property taxes
• · Property insurance
• · Maintenance of the stores
• · Insurance of the stores]
• Utilites