A pizza parlor has the following production costs 400 in lab

A pizza parlor has the following production costs: $4.00 in labor per pizza, $2.00 in ingredients per pizza, $0.11 in electricity per pizza, $2,000 in restaurant rent per month, and $250 in insurance per month. Assume the pizza parlor produces 9,000 pizzas per month. 1. What is the total variable cost of pizza production (per month)? 2. What is the total fixed cost of production (per month)?

Solution

Total variable cost = Labor cost + Ingredients cost + Electricity cost [Assuming electricity is consumed in making every pizza]

= 9,000 x $(4 + 2 + 0.11) = 9,000 x $6.11

= $335,988.90

Total fixed cost = Rent + Insurance = $(2,000 + 250) = $2,250