calculate for me please, with step by step directions on how to calculate this p
ID: 326130 • Letter: C
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calculate for me please, with step by step directions on how to calculate this problem.
3. A large hotel-casino in Las Vegas is currently under construction. There will be an Italian restaurant in the hotel that will serve pizza. Management is trying to decide whether to make the pizza themselves or t frozen and simply heat it to customer order. There are two major sources of commercial-grade frozen pizza: Ma Ma's Products and the Chun-Yee Corporation. If they make the pizza themselves a substantial amount of preparation equipment will be required, along with skilled personnel. Frozen pizza needs either a conventional oven (Ma Ma's) or a microwave (Chun-Yee). Financial data is as shown below (variable costs are estimated based on an average pizza purchase): Eixed CostyearVariable Cost Make in-house Ma Ma's Chun-Yee $7,870 $ 860 4.50 a. At what volume is either Ma Ma's or Chun-Yee acceptable? b. At what volume is the company indifferent to either Chun-Yee or make in-house?Explanation / Answer
To understand this question, lets first understand the meaning of Fixed cost per year & Variable cost per unit.
Fixed Cost Per year: It is the fixed expense of any manufacturing plant irrespective of the number of units produced. It includes expense like maintenance charges, building rent, administrative cost, audit cost etc.
Variable cost per unit: It the cost incurred to produce one unit of the goods. It includes expenses like raw material, logistics cost, labour cost etc.
In this case, if we want to calculate the total manufacturing cost of a unit over a year then we need to consider variable cost of total units produced & fixed cost of the manufacturing plant:
Total cost per year = Fixed cost per year + (Variable cost per unit)x(Number of units produced)
A) At what volume is either Ma Ma's or Chun-Yee acceptable?
Total cost per year = Fixed cost per year + (Variable cost per unit)x(Number of units produced)
Thus, lets at volume x per year cost of ordering from Ma Ma's & Chun-Yee is same.
860 + 5.6x = 2460 + 4.5x
1.1x=1600
x=16000/11
x=1454.54
Thus, if order company gives order of 1455 pizza, then it can give it to either of the two company because its cost will be same.
Cost of 1455 pizza at Ma Ma's= 860+ 5.6*1455 = $9008
Cost of 1455 pizza at Chen-Yee = 2460 + 4.5*1455 = $ 9007.5
b) At what volume is the company indifferent to either chun-yee or Make in-house?
Total cost per year = Fixed cost per year + (Variable cost per unit)x(Number of units produced)
Thus, lets at volume x per year cost of ordering from Chun-Yee & Make in-house is same.
7870 + 3.2x = 2460 + 4.5x
5410 = 1.3x
x = 54100/13
x = 4161.53
Thus, if order company gives order of 4162 pizza, then it can give it to Chun-Yee or produce it in-house, cost will be same.
Cost of 4162 pizza In-House= 7870 + 3.2*4162 = $21,188.4
Cost of 4162 pizza at Chen-Yee = 2460 + 4.5*4162 = $ 21,189
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