Question

Janele 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 24 pizzas an hour. The fixed costs associated with oven A are $25,000 and the variable costs are $2.50 per pizza. Oven B is larger and can handle 44 pizzas an hour. The fixed costs associated with oven B are $32,500 and the variable costs are $1.50 per pizza. The pizzas sell for $14.00 each. Which oven should Janele choose to maximize her profit?

1) Oven A
2) Oven B

Answer 1

To maximize profit, Janele should choose Oven B. Oven B has a higher total profit per hour compared to Oven A.

Step-by-step explanation:

To maximize profit, Janele should choose Oven A. Let's calculate the profit for each oven option:

Oven A:

Fixed costs = $25,000

Variable costs per pizza = $2.50

Profit per pizza = Selling price - Variable costs per pizza = $14.00 - $2.50 = $11.50

Pizzas produced per hour = 24

Total profit per hour = Profit per pizza * Pizzas produced per hour = $11.50 * 24 = $276

Oven B:

Fixed costs = $32,500

Variable costs per pizza = $1.50

Profit per pizza = Selling price - Variable costs per pizza = $14.00 - $1.50 = $12.50

Pizzas produced per hour = 44

Total profit per hour = Profit per pizza * Pizzas produced per hour = $12.50 * 44 = $550

Based on the calculations above, Oven B generates a higher total profit per hour compared to Oven A. Therefore, Janele should choose Oven B to maximize her profit.