The owner of Staten Island Restaurant is disappointed because the restaurant has been averaging 6,000 pizza sales per month but the restaurant and wait staff can make and serve 7,500 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, manager's salary) are $9,000 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 Staten Island Restaurant want to operate near or at full capacity?
3. The owner has been considering ways to increase the sales volume. It is believed that 7,500 pizzas could be sold per month by cutting the selling price from $6.25 per pizza to $5.75. 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 4,500 6,000 7,500 Total fixed costs Total costs Fixed cost per pizza Variable cost per pizza Selling price per pizza $6.25 6.25 6.25