A Large Hotel and Casino in Las Vegas Is Currently

question 79

Essay

A large hotel and casino in Las Vegas is currently under construction. There will be an Italian restaurant in the hotel that will serve pizza. Management is trying to decide whether to make the pizza themselves or buy it frozen and simply heat it to customer order. There are two major sources of commercial-grade frozen pizza: Ma Ma's Products and the Chun-Yee Corporation. If they make the pizza themselves, a substantial amount of preparation equipment will be required, along with skilled personnel. Frozen pizza needs either a conventional oven (Ma Ma's) or a microwave (Chun-Yee). Financial data is as shown below (variable costs are estimated based on an average pizza purchase):
$\begin{array}{|l|c|c|}\hline \text { Source } & \text { Fixed Cost/year } & \text { Variable Cost } \\\hline \text { Make in-house } & \$ 7,870 & \$ 3.20 \\\hline \text { Ma Ma's } & \$ 860 & \$ 5.60 \\\hline \text { Chun-Yee } & \$ 2,460 & \$ 4.50 \\\hline\end{array}$
a.At what volume is either Ma Ma's or Chun-Yee acceptable?
b.At what volume is the company indifferent to either Chun-Yee or make in-house?

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Definitions:

Electronic Fund Transfer Act

A United States federal law designed to protect consumers engaging in electronic transfer of funds.

Disclosure

The action of revealing or providing access to previously unknown or concealed information.

Consumer Protection

Laws and regulations designed to ensure the rights of consumers as well as fair trade, competition and accurate information in the marketplace.

Stop-Payment Order

A request made to a bank by an account holder not to pay a check or payment that has been issued but not yet cashed or withdrawn.