Question

# The owner of ManhattanManhattan Restaurant is disappointed because the restaurant has been averaging 7500 pizza sales...

The owner of ManhattanManhattan Restaurant is disappointed because the restaurant has been averaging 7500 pizza sales per month, but the restaurant and wait staff can make and serve 10000 pizzas per month. The variable cost (for example, ingredients) of each pizza is \$1.55 Monthly fixed costs (for example, depreciation, property taxes, business license, and manager's salary) are \$12000 per month. The owner wants cost information about different volumes so that some operating decisions can be made.Read the requirements

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 standpoint, why do companies such as

ManhattanManhattan

Restaurant want to operate near or at full capacity?

3.

The owner has been considering ways to increase the sales volume. The owner thinks that 10000 pizzas could be sold per month by cutting the selling price per pizza from\$6.25 a pizza to \$5.75 How much extra profit (above the current level) would be generated if the selling price were to be decreased? (Hint: Find the restaurant's current monthly profit and compare it to the restaurant's projected monthly profit at the new sales price and volume.

Requirement 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. (Enter total variable costs to the nearest dollar. Enter costs per pizza, price per pizza, and profit per pizza to the nearest cent.)

 Monthly pizza volume. . . . . . . . . . . . 6,000 7,500 10,000 Total fixed costs. . . . . . . . . . . . . . . 10000 10000 10000 Total variable costs. . . . . . . . . . . . . . Total costs Fixed cost per pizza. . . . . . . . . . . . . Variable cost per pizza. . . . . . . . . . . 1.55 1.55 Average cost per pizza. . . . . . . . . . . Selling price per pizza. . . . . . . . . . . . \$6.25 \$6.25 \$6.25 Average profit per pizza. . . . . . . . . .

1)

 Monthly pizza volume. . . . . . . . . . . . 6,000 7,500 10,000 Total fixed costs. . . . . . . . . . . . . . . 12000 12000 12000 Total variable costs. . . . . . . . . . . . . . 9300 11625 15500 Total costs 21300 23625 27500 Fixed cost per pizza. . . . . . . . . . . . . 2 1.6 1.2 Variable cost per pizza. . . . . . . . . . . 1.55 1.55 1.55 Average cost per pizza. . . . . . . . . . . 3.55 3.15 2.75 Selling price per pizza. . . . . . . . . . . . \$6.25 \$6.25 \$6.25 Average profit per pizza. . . . . . . . . . \$2.70 \$3.10 \$3.50

2) The more pizzas they makes , Fixed costs decreases per pizza this in turn reduces the average cost per pizza.

reducing in an inverse relationship whereby the average profit per pizza increases,More simply Lower fixed costs means more profit.

3)

 Total fixed costs. . . . . . . . . . . . . . . 12000 12000 Total variable costs. . . . . . . . . . . . . . 15500 11625 Total costs 27500 23625 Fixed cost per pizza. . . . . . . . . . . . . 1.2 1.6 Variable cost per pizza. . . . . . . . . . . 1.55 1.55 Average cost per pizza. . . . . . . . . . . 2.75 3.15 Selling price per pizza. . . . . . . . . . . . \$5.75 \$6.25 Average profit per pizza. . . . . . . . . . \$3.00 \$3.10 Total profit 30000 23250 Difference in profit 6750

By lowering the sale price company would make profit of 6750 by increase in volume size

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