Question 2 (Total 20 marks)

Pancake Mama is considering to buy a new oven to expand their pancakes business.

Oven type A can handle 300 pancakes an hour. The fixed costs associated with oven A are $18,000 and variable costs are $3.00 per piece of pancake.

Oven type B is larger and highly tailor-made and can handle 450 pancakes an hour. The fixed costs associated with oven B are $48,300 and variable costs are $1.20 per piece of pancake.

The pancakes are sold at $15 per piece.

a) What is the breakeven point in terms of piece of pancake for each oven? (2 marks)

b) If the owner expects to sell 9,000 pieces, which oven should he purchase? (3 marks)

c) If the owner expects to sell 20,000 pieces, which oven should he purchase? (3 marks)

d) Due to market situation, the selling price is now reduced to $13 per piece, then how are the breakeven points of oven A and B be affected? Comment with calculated numbers. (2 marks)

e) As per question d), construct breakeven diagrams for oven A and B in separate with all the details. Label all the numbers in both diagrams. (6 marks)

f) If you were the owner of Pancake Mama, besides breakeven point analysis what other factors should you consider making a better comparison between oven A and B? Suggest four of them. (4 marks)