The Local Convenience Store Makes Personal Pan Pizzas

question 114

Essay

The local convenience store makes personal pan pizzas. Currently, their oven can produce 60 pizzas per hour. It has a fixed cost of $2,500, and a variable cost of $0.28 per pizza. The owner is considering a bigger oven that can make 85 pizzas per hour. It has a fixed cost of $3,200, but a variable cost of $0.21 per pizza.
a. At what quantity do the two ovens have equal costs?
b. If the owner expects to sell 9,000 pizzas, should he get the new oven?

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Definitions:

Continuous Process

A manufacturing process where raw materials are continuously fed into production, and products are continuously outputted.

Production Departments

Divisions within a manufacturing company dedicated to specific production processes or tasks.

Journalize

The process of recording financial transactions in a company's journal, the first step in the accounting cycle that chronicles all financial activities.

Factory Overhead Rate

The total indirect manufacturing costs associated with production, allocated over a specific base such as labor hours or machine hours.