Suppose a pizza parlor has the following production costs: $3.003.00 in labor per pizza, $1.001.00 in ingredients per pizza, $0.500.50 in electricity per pizza, $2,5002,500 in restaurant rent per month, and $400400 in insurance per month. Assume the pizza parlor produces 3,0003,000 pizzas per month. What is the variable cost of production (per month)?
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Question:
Suppose a pizza parlor has the following production costs: $3.003.00 in labor per pizza, $1.001.00 in ingredients per pizza, $0.500.50 in electricity per pizza, $2,5002,500 in restaurant rent per month, and $400400 in insurance per month. Assume the pizza parlor produces 3,0003,000 pizzas per month. What is the variable cost of production (per month)?
Answer:
Answer:
Variable cost of production per month: $13,500
Explanation:
The variable cost is the cost that changes in proportion of the production. In this case, the monthly rent and insurance will remain the same if the production is 1 pizza per month or n pizzas per month so they are NOT part of the variable cost.
The variable cost in this case is the materials (ingredients), labor and electricity that are variable.
So, Pizza variable cost per pizza = 3 $/Pizza (labor)+1 $/Pizza (ingredients)+ 0.5 $/Pizza (electricity)=4.5 $/pizza
And if we produce 3,000 pizzas per month =>
Total variable cost: 4,5 $/pizza*3,000 pizzas= $13,500
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