Question

You run a small Italian restaurant that does not yet serve pizza. In fact, your restaurant serves mainly pasta dishes and very little oven baked entrees. You have decided to convince your boss that he should be getting into the pizza business. He, however, is not quite convinced and is worried about the cost. Your research shows that a brand new pizza oven would cost about $10,000. You have calculated the cost of actually making the pizza; ingredients, labor, and the cost of utilities in actually making the pizza, at $5.00 per pizza. Your supervisor stated that he has made an agreement to buy freshly made pizzas from a larger restaurant outside of town for $6.75 each. Using the formula Q=(FC1-FC2)/(VC2-VC1), calculate the Break-even Quantity,Q, at which point the cost of purchasing pizzas would be equal to the cost of making the pizzas in-house.

Answer 1

Q= 5714 pizzas

Step-by-step explanation:

Giving the following information:

Your research shows that:

Pizza oven= $10,000.

Making the pizza= $5.00 per pizza.

To buy freshly made pizzas costs $6.75 each.

Q= (Fixed cost 1 - Fixed cost 2)/ (variable cost 2 - variable cost 1)

Q=(10000-0)/(6.75 - 5)

Q= 5714