The owner of

Manhattan

Restaurant is disappointed because the restaurant has been averaging

4,000

pizza sales per month, but the restaurant and wait staff can make and serve

5,000

pizzas per month. The variable cost (for example, ingredients) of each pizza is

$1.15.

Monthly fixed costs (for example, depreciation, property taxes, business license, and manager's salary) are

$4,000

per month. The owner wants cost information about different volumes so that he can make some operating decisions.

Requirements

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Part 1

Requirement 1. Fill in the chart to provide the owner with the cost information he wants. Then use the completed chart to help you answer the remaining questions. (Round total variable costs to the nearest dollar. Round costs per pizza, price per pizza, and profit per pizza to the nearest cent.)

	Monthly pizza volume	2,000	4,000	5,000
	Total fixed costs	$4,000	$4,000	$4,000
	Total variable costs	2,300	4,600	5,750
	Total costs	$6,300	$8,600	$9,750
	Fixed cost per pizza	$2.00	$1.00	$0.80
	Variable cost per pizza	1.15	1.15	1.15
	Average cost per pizza	$3.15	$2.15	$1.95
	Sales price per pizza	$5.75	$5.75	$5.75
	Average profit per pizza	$2.60	$3.60	$3.80

Part 2

Requirement 2. From a cost standpoint, why do companies such as

Manhattan

Restaurant want to operate near or at full capacity?

Companies want to run at full capacity to better utilize the resources they spend on

average

average

fixed

variable

costs. The more units they produce, the

higher

higher

lower

the

sales price

average fixed cost

average variable cost

sales price

variable cost

per unit.