the owner of a pizza place is considering a new oven in which to bake the pizzas

Question

the owner of a pizza place is considering a new oven in which to bake the pizzas. Oven type A can handle 25 pizzas per hour. the fixed costs associated with oven A are $10,000 and the variable costs are $2.00 per pizza. Oven B is larger and can handle 40 pizzas per hour. the fixed costs associated with oven B are $30,000 and the variable costs are $1.50 per pizza. The pizzas sell for $14.00 each.

a) what is the break even point for each oven?
b) if the owner expects to sell 20,000 pizzas, which oven should she purchase?
c) if the owner expects to sell 6,000 pizzas, which oven should she purchase?
d) at what volume should Janelle switch ovens?

Explanation / Answer

.break-even point, divide the fixed cost by the profit per pizza: $20,000/12 = 1667 Break-even point for Oven A Each pizza sells for $14. It cost $1.25 to make each pizza in Oven B. So the profit without considering fixed costs is $12.75.

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