The owner of Brooklyn 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 6,000 pizzas per month. The variable cost (for example, ingredients) of each pizza is $ 1.25. Monthly fixed costs (for example, depreciation, property taxes, business license, manager’s salary) are $ 6,000 per month. The owner wants cost information about different volumes so that some operating decisions can be made.

Requirements

1. Fill in the chart 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 Brooklyn 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 6,000 pizzas could be sold per month by cutting the selling price from $ 6.00 per pizza to $ 5.50. How much extra profit (above the current level) would be generated if the selling price were to be decreased?

Transcribed Image Text:

Monthly pizza volume. Total fixed costs. Total variable costs.. Total costs.. Fixed cost per pizza. Variable cost per pizza Average cost per pizza. Selling price per pizza. Average profit per pizza. 3,000 4,000 6,000 $ 6.00 $6.00 $6.00