We’re Evenly Broken!
At Pete's-A-Hutt, the owner, Pete Peteroni is planning to sell only large pepperoni
(Halal of course) pizzas. The monthly cost structure is as follows:
Fixed Costs
Variable Costs (per pizza)
General Labor
$
1,500
Flour
$
0.50
Rent
$
3,000
Yeast
$
0.05
Insurance
$
200
Water
$
0.01
Advertising
$
500
Cheese
$
3.00
Utilities
$
450
Pepperoni
$
2.00
(1) If he thinks he can sell 1,250 pizzas each month at $10/pizza, do you think this is a
profitable business?
(2) If he is planning to price each pizza at $10, what is his monthly breakeven
quantity?
(3) Pete was told by a friend that if he opens his store for another half shift, he could
sell another 750 pizzas/month. However, if he does that, his rent and utilities will
increase by 40% and he will have to keep his staff for the extra half shift making his
labor costs increase by 50%. Other costs will remain unchanged. Is this a good deal?
(4) Under the new plan, what is his revised breakeven quantity