Question

Suppose a pizza parlor has the following production​ costs: ​$3.003.00 in labor per​ pizza, ​$1.001.00 in ingredients per​ pizza, ​$0.500.50 in electricity per​ pizza, ​$2,5002,500 in restaurant rent per​ month, and ​$400400 in insurance per month. Assume the pizza parlor produces 3,0003,000 pizzas per month. What is the variable cost of production​ (per month)?

Answer 1

Variable cost of production per month: $13,500

Step-by-step explanation:

The variable cost is the cost that changes in proportion of the production. In this case, the monthly rent and insurance will remain the same if the production is 1 pizza per month or n pizzas per month so they are NOT part of the variable cost.

The variable cost in this case is the materials (ingredients), labor and electricity that are variable.

So, Pizza variable cost per pizza = 3 $/Pizza (labor)+1 $/Pizza (ingredients)+ 0.5 $/Pizza (electricity)=4.5 $/pizza

And if we produce 3,000 pizzas per month =>

Total variable cost: 4,5 $/pizza*3,000 pizzas= $13,500