ontributePublish To Website Post Io Annual rental costs and operating costs Annu
ID: 340617 • Letter: O
Question
ontributePublish To Website Post Io Annual rental costs and operating costs Annual Capacity Costs vary with the size of the ovens. The ovens' capacities and costs are as follows Small Normal Big 35,000 110,000 200,000 10,000 5,000 27 000 Fixed Cost Per Pizza Costs Pizza Ingredients Dough costs (less dough needed in larger ovens) 0.13 0.22 0.08 0.43 0.11 0.14 0.08 0.33 0.09 0.05 0.07 0.21 1Variable Utilities and Energy Small Vs Normal Change in FC Change in Vc 5,000 0.10 Please calcu late the break-even (indifference) points between these three sizes Break Even Point 6 C oncept question: Should management lease the same type of oven and force every chain to use the same oven type? Explain why or why not? 29 0 What is the issue with the indifference point between Small vs Large? What would the actual indference be given the capacity constraints? 34 35 36 37 38 Cost BehavorMultple Product Break-even Relevant Costs-Special Order Pricing Fixed vs Variable Costs ReadyExplanation / Answer
The break even computation what you gave is correct, but this comparision is not logical given differences in capacities, if capacities are same breakeven can be computed and logical conclusion can be drawn from the same, but when capapcities aare different this is not logical approach.
For example for production qty more than 35,000 you need to buy 2 small which is costlier in both fixed cost as well as variable cost in comparision with Normal one.
Break even between Normal and Big is as follows
Incrremental fixed cost = 27,000- 15,000 = 12,000
Decrease in variable cost = 0.33-0.21 = 0.12
Break even is 100,000
So from 35,000 till 100,000 Normal is better and for more than
Capacity <35,000 >35,000 and <100,000 >100,000
Optimal option Small Normal Big
Management shall not force same type of oven for every chain, it has to be decided based on expected demand.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.