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Lugano's Pizza Parlor is considering the purchase of a large oven and related equipment for mixing and baking "crazy bread." The oven and equipment would cost $120,000 delivered and installed. It would be usable for about 15 years, after which it would have a 10% scrap value. The following additional information is available:

a. Mr. Lugano estimates that purchase of the oven and equipment would allow the pizza parlor to bake and sell 72,000 loaves of crazy bread each year. The bread sells for $1.25 per loaf.

b. The cost of the ingredients in a loaf of bread is 40% of the selling price. Mr. Lugano estimates that other costs each year associated with the bread would be as follows: salaries, $18,000; utilities, $9,000; and insurance, $3,000.

c. The pizza parlor uses straight-line depreciation on all assets, deducting salvage value from original cost. (Ignore income taxes.)

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9985616

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