The factors that must be considered while taking decisions to increase the profitability. Concept introduction: Marginal Analysis tool in the hands of producers to find out the profits and the associated cost with an activity.

Question

A. At XYZ Restaurant, which sells only pepperoni pizza, has the cost profile: [Note that variable costs are per pizza] Fixed Costs Variable Costs General $1,500 Flour $0.50 Labor Rent $3,000 Yeast s0.05 Insurance $200 Water $0.01 Advertising $500 Cheese $3.00 $450 Pepperoni $2.00 Utitilies Total $5,650 Total $5.56 Based on the total variable expenses per pizza, we now know that XYZ Restaurant must price its pizzas at $5.56 ($0.50 + $0.05 + $0.01 + $3.00 + $2.00) or higher just to cover those costs. We also know that if the pizzeria charges $10 for the finished product, then it receives $4.44 per pizza to contribute to the fixed costs and ultimately the restaurants overall profits. Question: How many pizzas does XYZ Restaurant need to sell at $10 each to cover all those fixed monthly expenses?

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Chapter 1, Problem 4P

To determine

The factors that must be considered while taking decisions to increase the profitability.

Concept introduction:

Marginal Analysis tool in the hands of producers to find out the profits and the associated cost with an activity.

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A. At XYZ Restaurant, which sells only pepperoni pizza, has the cost profile: [Note that variable costs are per pizza] Fixed Costs Variable Costs General $1,500 Flour $0.50 Labor Rent $3,000 Yeast s0.05 Insurance $200 Water $0.01 Advertising $500 Cheese $3.00 $450 Pepperoni $2.00 Utitilies Total $5,650 Total $5.56 Based on the total variable expenses per pizza, we now know that XYZ Restaurant must price its pizzas at $5.56 ($0.50 + $0.05 + $0.01 + $3.00 + $2.00) or higher just to cover those costs. We also know that if the pizzeria charges $10 for the finished product, then it receives $4.44 per pizza to contribute to the fixed costs and ultimately the restaurants overall profits. Question: How many pizzas does XYZ Restaurant need to sell at $10 each to cover all those fixed monthly expenses?

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