Question

The local convenience store makes personal pan pizzas. Currently, their process makes complete pizzas, fully cooked, for the customer. This process has a fixed cost of $20,000, and a variable cost of $1.75 per pizza. The owner is considering a different process that can make pizzas in two ways: completely cooked (as before), or partially cooked and then flash frozen, for the customer to finish at home. This alternate process has a fixed cost of $24,000, but a lower variable cost (because much less energy is used in baking) of $1.25 per pizza.a. What is the crossover point between the existing process and the proposed process?b. If the owner expects to sell 9,000 pizzas, should he get the new oven?

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Process A:

Fixed cost= $20,000

Unitary variable cost= $1.75

Process B:

Fixed cost= $24,000

Unitary variable cost= $1.25

A) First, we need to structure the total costs formula:

Process A= 20,000 + 1.75x

Process B= 24,000 + 1.25x

x= number of units

Now, we will equal them to determine the crossover point:

20,000 + 1.75x = 24,000 + 1.25x

0.5x= 4,000

units= 8,000

B) units= 9,000

Process A= 20,000 + 1.75*9,000= $35,750

Process B= 24,000 + 1.25*9,000= $35,250

The company should acquire a new process.