Question

Janelle​ Heinke, the owner of​ Ha'Peppas!, is considering a new oven in which to bake the​ firm's signature​ dish, vegetarian pizza. Oven type A can handle 22 pizzas an hour. The fixed costs associated with oven A are $ 25 comma 000 and the variable costs are $ 2.50 per pizza. Oven B is larger and can handle 40 pizzas an hour. The fixed costs associated with oven B are $ 32 comma 500 and the variable costs are $ 1.50 per pizza. The pizzas sell for $ 12.00 each.

(a) What is the break-even point for each oven?
(b) If the owner expects to sell 9,000 pizzas, which oven should she purchase?

Answer 1

a. Find the break even points in units for each oven.

Breakeven for type A pizza x = = 1,666.6 units of pizza need to be sold in order to obtain breakeven for Type A

Breakeven for type B pizza x = = 2,352.9 units of pizza need to be sold in order to obtain breakeven for Type B

b. If the owner expects to sell 9000 pizzas, which oven should she purchase?

Type B: because the profit will be twice what will be obtainable from type A considering the fact that it produces pizza at the ration of TypeB:TypeA, 40:20 or 2:1

Profit for type a = 9000/20 x 14 = 6,300 – 1,666,6units ($23, 3332) = 4366.4 units

Profit for type B = 10,247.1 units of pizza - which makes it justifiable

c. If the owner expects to sell 12,000 pizzas, which oven should she purchase?

Type B: because the profit will be twice what will be obtainable from type A considering the fact that it produces pizza at the ration of TypeB:TypeA, 40:20 or 2:1

Step-by-step explanation:

Answer 2

(A) Oven A 2,631.57 units

Oven B 3,095.24 units

(B) Oven A $60,500

Oven B $62,000

Step-by-step explanation:

(a) The formula to compute the break even point is shown below:

= (Fixed expenses ) ÷ (Contribution margin per unit)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit

So For Oven A, the break even point would be

= ($25,000) ÷ ($12 - $2.5)

= $25,000 ÷ $9.5

= 2,631.57 units

And For Oven B, the break even point would be

= ($32,500) ÷ ($12 - $1.5)

= $32,500 ÷ $10.5

= 3,095.24 units

(B) In this part, we have to compute the net income or net loss which is shown below:

We know that,

The net income would be = Contribution margin per unit × number of units - fixed cost

So For Oven A, the net income would be

= ($9.5 × 9,000 units) - $25,000

= $85,500 - $25,000

= $60,500

And For Oven B, the net income would be

= ($10.5 × 9,000 units) - $32,500

= $94,500 - $32,500

= $62,000

The oven B should be purchased as it have high net income than oven A