Bus 640 Week 3 Assignment

Production Cost Analysis and Estimation Applied Problems

BUS640 Managerial Accounting

Instructor Choi

March 9, 2015

Production Cost Analysis and Estimation Applied Problems

Problem 1:

William is the owner of a small pizza shop and is thinking of increasing products and lowering costs. William’s pizza shop owns four ovens and the cost of the four ovens is $1,000. Each worker is paid $500 per week.

Workers Employed | Qty of pizzas produced per week |

0 | 0 |

1 | 75 |

2 | 180 |

3 | 360 |

4 | 600 |

5 | 900 |

6 | 1140 |

7 | 1260 |

8 | 1360 |

Show all of your calculations and processes. Describe your answer for each question in complete sentences, whenever it is necessary.

# Workers | Oven Cost - Fixed | Labor Cost - Variable | Total Cost | # of Pizzas - Variable | Average Cost | Pizzas Per Worker | Increase in Production |

0 | $ 1,000 | $ - | $ 1,000 | 0 | 0 | 0 | 0 |

1 | $ 1,000 | $ 500 | $ 1,500 | 75 | $ 20.00 | 75 | 75 |

2 | $ 1,000 | $ 1,000 | $ 2,000 | 180 | $ 11.11 | 90 | 105 |

3 | $ 1,000 | $ 1,500 | $ 2,500 | 360 | $ 6.94 | 120 | 180 |

4 | $ 1,000 | $ 2,000 | $ 3,000 | 600 | $ 5.00 | 150 | 240 |

5 | $ 1,000 | $ 2,500 | $ 3,500 | 900 | $ 3.89 | 180 | 300 |

6 | $ 1,000 | $ 3,000 | $ 4,000 | 1140 | $ 3.51 | 190 | 240 |

7 | $ 1,000 | $ 3,500 | $ 4,500 | 1260 | $ 3.57 | 180 | 120 |

8 | $ 1,000 | $ 4,000 | $ 5,000 | 1360 | $ 3.68 | 170 | 100 |

a. Which inputs are fixed and which are variable in the production function of William’s pizza shop? Over what ranges do there appear to be increasing, constant,...