Question: Marc s Pizza Palace has been in business for three months

Marc’s Pizza Palace has been in business for three months, selling a very good three-cheese pizza. Because of customer demand, Marc has decided to introduce a variety of new pizzas next month, including specialty meat pizzas and veggie pizzas. Since he opened his business, Marc has allocated overhead to each pizza by simply dividing the estimated total overhead by the estimated number of pizzas. Now, Marc realizes that the new pizzas will require more preparation time and more time in the oven. He does not expect the total volume of pizzas to change; some customers who now order cheese will simply switch to one of the other options.

A. Does it make sense to still allocate overhead by number of pizzas if the total number of pizzas remains the same? Why or why not?
B. What are Marc’s alternatives for allocating his overhead costs?

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  • CreatedMarch 11, 2015
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