Question

Janelle Heinlein, the owner of Ha' Pappas! Is considering a new oven in which to bake the firm's signature dish vegetarian pizza. Oven type a can handle 24 pizzas an hour. The fixed costs associated with oven A are $22.000 and the variable costs are $2.50 per pizza. Oven B is larger and can handle 42 pizzas an hour.The fixed costs associated with oven B are $30,000 and the variable cost are $ 1.25 per pizza . The pizzas sell for $12.00 each.

A) The break even points in units for oven type A=..........units (round your response to the nearest whole number)

The break even point in units for oven type B....

B) If Janelle is expecting that the pizza shop is going to be able to sell 8,000 pizza, then she should select oven .........

C) if Janelle is expecting that the pizza shop is going to be able to sell 14,000 pizzas, then she should select oven..........

D) The volume at which oven A and oven B have the same cost ( cross point) and Janelle would be indifferent =..........Pizza ( round your response to the nearest whole)

Answer 1

Oven A

Total Cost = Fixed Cost+Variable Cost*Number of Pizzas

=22000+2.50*X

Where X is the number of Pizzas

Oven B

Total Cost= 30000+1.25X

a)Break Even Point for oven A = Fixed cost /(Selling price- Variable Cost)=22000/(12-2.5)= 2315.789= 2316 units

b) Break Even Point for oven B = 30000/(12-1.25)= 2790.68=2791 units

c) If expected sell is 8000

Profit for Oven A= 8000*(12-2.5)-22000=54000

Profit for Oven B= 8000*(12-1.25)-30000= 56000

So , he should select Oven B

d) If expected sell is 12000

Profit for Oven A= 12000*(12-2.5)-22000=92000

Profit for Oven B= 12000*(12-1.25)-30000= 99000

So , he should select Oven B

e) Total Cost A= Total cost b

22000+2.5X=30000+1.25X

Solving this 1.25X= 8000

X= 6400

So, at 6400 units oven A and oven B have the same cost

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