Part II. Problem Solving

1. Lady Gaga, the owner of JaxGamecocks Pizza restaurant, is considering a new oven in which to bake the restaurant’s signature dish, vegetarian & seafood pizza. Oven type A can handle 30 pizzas an hour. The fixed costs associated with oven A are $24,000 and the variable costs are $2.25 per pizza. Oven B is larger and can handle 70 pizzas an hour. The fixed costs associated with oven B are $43,000 and the variable costs are $1.55 per pizza. The pizzas sell for $14.00 each. Show your work (10 points)

(a) What is the Break-Even Point (BEP) for each oven?

(b) If the owner of this restaurant expects to sell 6,000 pizzas, which oven system are you going to recommend? (Net Profit = Total Revenue (TR) – Total Cost (TC)

(c) If the owner of this restaurant expects to sell 82,000 pizzas, which oven system should he/she purchase? (Net Profit = Total Revenue (TR) – Total Cost (TC))

(d) At what volume, should the owner of this restaurant switch ovens to maximize the profit? (Switching Point (= Cross-over Point) à where TC1 = TC2)