Question

The owner of Miller Restaurant is disappointed because the restaurant has been averaging 7,500 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 $1.55. Monthly fixed costs (for example, depreciation, property taxes, business license, manager's salary) are $12,000 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:Monthly pizza volume 6,000 7,500 10,000 Total fixed costs Total variable costs Total costs Fixed cost per pizza Variable cost per pizza Average cost per pizza Selling price per pizza S 6.25 S 6.25 S 6.25 Average profit per pizza2) From a cost standpoint, why do companies such as Miller 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 could be sold per month by cutting the selling price per pizza from $6.25 to $5.75. How much extra profit (above the current level) would be generated if the selling price were to be decreased? (HINT: Find the restaurant's current monthly profit and compare it to the restaurant's projected monthly profit at the new sales price and volume.)

Answer 1

Answer: The answer is provided and attached below.

Explanation:

The explanation for number 1 and 3 has been attached.

2. The break even point is level of production whereby a company makes no profit or loss. When a company operates below the break even point, the company makes a loss and when a company operates above this level, the company make a profit. The higher the level, the higher the profit.

Therefore, from a cost point of view, Miller restaurant and every other company wants to operate at the full or near full capacity in order to earn higher level of profit. At this point, the fixed costs have been recovered, and every additional unit makes up the profit of the company.