The owner of Riverdale Restaurant is disappointed because the restaurant has been averaging 5,000 pizza sales per month, but the restaurant and wait staff can make and serve 10,000 pizzas per month. The variable cost (for example, ingredients) of each pizza is $1.20. Monthly fixed costs (for example, depreciation, property taxes, business license, and manager's salary) are $5,000 per month. The owner wants cost information about different volumes so that some operating decisions can be made.
Requirements
1. Fill in the following 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 Riverdale 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 10,000 pizzas could be sold per month by cutting the selling price per pizza from $5.50 to $5.00. How much extra profi t (above the current level) would be generated if the selling price were to be decreased?

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Monthly pizza volume Total fixed costs Total variable costs Total costs 2,500 5,000 10,000 Variable cost per pizza Average cost per pizza Selling price per pizza $ 5.50 $ 5.50 $ 5.50