John Cook, the owner of Extra Pizza restaurant, is considering a new oven in which to bake the restaurant's signature dish, vegetarian & seafood pizza.Oven type A can handle 20 pizzas an hour. The fixed costs associated with oven A are $30,000 and the variable costs are $2.25 per pizza.
Oven B is larger and can handle 50 pizzas an hour. The fixed costs associated with oven B are $50,000 and the variable costs are $1.50 per pizza.The pizzas sell for $15.00 each.
1. What is the Break-Even Point (BEP) for each oven?
2. If the owner of this restaurant expects to sell 10,000 pizzas, which oven system are you going to recommend? (Net Profit = Total Revenue (TR) - Total Cost (TC))
3. If the owner of this restaurant expects to sell 50,000 pizzas, which oven system should he/she purchase? (Net Profit = Total Revenue (TR) - Total Cost (TC))
4. At what volume, should the owner of this restaurant switch ovens to maximize the profit? (Switching Point (= Cross-over Point) rightarrow where TC_1 = TC_2)