The owner of Dartmouth 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 licence, manager€™s salary) are $5,000 per month. The owner wants cost information about different volumes so that he can make some operating decisions.

Requirements

1. Fill in the chart to provide the owner with the cost information he wants. Then use the completed chart to help you answer the remaining questions.

2. From a cost standpoint, why do companies such as Dartmouth Restaurant want to operate near or at full capacity?
3. The owner has been considering ways to increase the sales volume. He believes he could sell 10,000 pizzas a month by cutting the sales price from $5.50 a pizza to $5.00. How much extra profit (above the current level) would he generate if he decreased the sales price?

Transcribed Image Text:

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