The Local Convenience Store Makes Personal Pan Pizzas

question 52

Essay

The local convenience store makes personal pan pizzas.Currently,its process makes complete pizzas,fully cooked,for the customer.This process has a fixed cost of $20,000,and a variable cost of $1.75 per pizza.The owner is considering a different process that can make pizzas in two ways: completely cooked (as before),or partially cooked and then flash frozen for the customer to finish heating at home.This alternate process has a fixed cost of $24,000,but a lower variable cost (because much less energy is used in baking)of $1.25 per pizza.
a.What is the crossover point between the existing process and the proposed process?
b.If the owner expects to sell 9,000 pizzas,should he get the new oven?

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Definitions:

Gross Profit

The difference between the revenue generated from selling goods or services and the cost of those goods sold, excluding other operating expenses.

Cost Of Goods Sold

The direct costs attributable to the production of goods sold by a company, including materials and labor, used in calculating gross profit.

Selling Expenses

Costs incurred directly and indirectly in making sales, including advertising, commissions, and shipping expenses.

Operating Expenses

Ongoing costs for running a business that do not include the cost of goods sold but can cover expenses such as rent, utilities, and salaries.