Question

The owner of Bronx Restaurant is disappointed because the restaurant has been averaging 4.000 plura sales per month, but the restaurant and wait staff can make and serve 6.000 plazas per month The variable cost for example ingredients) of each pizza is $125. Monthly food costs (for example, depreciation property taxes, business license and manager's salary) are $6,000 per month. The owner wants cost n a tion about different volumes so that some operating decisions can be made. Read the requirements Total fleed costs Requirements Total variable costs Total costs Food cost per pizza Variable cost per plaza 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 2. From a cost andpoint, why do companies such as Bronx Restaurant want to operate near or at lul capacity? 3. The owner has been considering ways to increase the sales volume. The owner thinks that 6.000 pzas od be sold per month by cutting the selling price per pieza from $600 a pizza to $550 How much extra proft (above the current level) would be generated the selling price were to be decreased? (Hint Find the restaurant's current monthly proft and compare to the restaurants projected monthly profit of the new sales price and volume) Average cost per pleza Seling price per pizza 600 S average proft per pleza Print Done er any number in the edit fields and then click Check Answer

Answer 1

1	Sales volume				4000	5000	6000
	Total fixed costs				6000	6000	6000
	Total variable costs				5000	6250	7500
					(4000*1.25)	(5000*1.25)	(6000*1.25)
	Total costs				11000	12250	13500
	Fixed costs per pizza				1.5	1.2	1
					(6000/4000)	(6000/5000)	(6000/6000)
	Variable cost per pizza				1.25	1.25	1.25
	Average cost per pizza				2.75	2.45	2.25
	Selling price per pizza				6	6	6
	Average profit per pizza				3.25	3.55	3.75
	(Selling price-Average cost)				(6-2.75)	(6-2.45)	(6-2.25)
2	If more pizza is produced,then fixed cost per pizza will decrease.
	This will reduce the average cost per pizza and this will increase the average profit per pizza.
	Hence, company want to operate near or at full capacity
3	Profit=Sales volume*Average profit per pizza
	Current profit=4000*3.25=$ 13000
	Selling price at 6000 pizza=$ 5.50
	Average profit per pizza=5.50-2.25=$ 3.25
	New profit=6000*3.25=$ 19500
	Extra profit=19500-13000=$ 6500