The local convenience store makes personal pan pizzas. Currently, their oven can

Question

The local convenience store makes personal pan pizzas. Currently, their oven can produce 50 pizzas per hour. It has a fiixed cost of $2,000, and a variable cost of $0.25 per pizza. The owner is considering a bigger oven that can make 75 pizzas per hour. It has a fixed cost of $3,000, but a variable cost of $0.20 per pizza. The price per pizza is $5.

1. The current break-even points in units is:

2. The current break-even point in dollars is:

3. The new break-even point in units will be:

4. The new break-even point in dollars will be:

5. If the owner expects to sell 9,000 pizzas and changes the oven, will profit change? If so, by how much?

Explanation / Answer

Hi,

Please find the answer as follows;

Part 1:

Current Break Even Point (Units) = Fixed Cost/(Sellimg Price - Variable Cost) = 2000/(5-.25) = 421.05 or 421 units

Part 2:

Current Break Even Point (Dollars) = Current Break Even Point (Units)*Current Selling Price = 421*5 = $2105

Part 3:

New Break Even Point (Units) = Fixed Cost/(Sellimg Price - Variable Cost) = 3000/(5-.20) = 625 units

Part 4:

New Break Even Point (Dollars) = New Break Even Point (Units)*Current Selling Price = 625*5 = $3125

Part 5:

Overall Profit will decrease by 40750 - 40200 = 550.

Thanks.

Current New Sales 45000 45000 Less Variable Costs 2250 1800 Contribution 42750 43200 Fixed Cost 2000 3000 Profit 40750 40200

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