The owner of Marshall Restaurant is disappointed because the restaurant has been averaging 7,500 pizza sales per month, but the restaurant and wait staff can make and serve 10,000 pizzas per month. The variable cost (for example, ingredients) of each pizza is $1.55. Monthly fixed costs (for example, depreciation, property taxes, business license, and manager's salary) are $12,000 per month.

Sales price is $10 per pizza. The owner wants cost information about different volumes so that some operating decisions can be made.

Fill in the following chart to provide the owner with the cost information.

Monthly Pizza Volume 6,000 7,500 10,000
Total fixed costs
Total variable costs
Total costs
Fixed cost per pizza
Variable cost per pizza
Average cost per pizza
Selling price per pizza
Average profit per pizza

The cost is the expenditure required to produce or sell the product or get an asset ready for normal use. In other words, it is the amount paid to manufacture a product, sell merchandise, purchase inventory or get the equipment ready to use in a business process.

What does the definition of the term cost?

In accounting, the costs are defined as the cash amount or the cash equivalent given up for an asset. Cost includes all costs necessary to get an asset in place and ready for use. For example, the cost of an item in inventory also includes the item's freight-in cost. The cost of land includes all costs to get the land ready for its use.

No of units 6,000 7,500 10,000

Total fixed cost $12,000.00 $12,000.00 $12,000.00

Total variable cost $9,000.00 $11,250.00 $15,000.00

Total cost $21,000.00 $23,250.00 $27,000.00

Fixed cost per pizza $2.00 $1.60 $1.20

Variable cost per pizza $1.50 $1.50 $1.50

Average cost per pizza $3.50 $3.10 $2.70

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