A large hotel and casino in Las Vegas is currently under construction. There will be an Italian restaurant in the hotel that will serve pizza. Management is trying to decide whether to make the pizza themselves or buy it frozen and simply heat it to customer order. One major source of commercial-grade frozen pizza is Chun-Yee Corporation. If they make the pizza themselves a substantial amount of preparation equipment will be required, along with skilled personnel. Financial data is as shown below (variable costs are estimated based on an average pizza purchase): $\begin{array}{|l|c|c|}
\hline \text { Source } & \text { Fixed Cost/year } & \text { Variable Cost } \
\hline \text { Make in-house } & \$ 7,870 & \$ 3.20 \
\hline \text { Chun-Yee } & \$ 2,460 & \$ 4.50 \
\hline
\end{array}$ At what volume is the company indifferent to either Chun-Yee or make in-house?
A) Less than or equal to 2,000
B) More than 2,000 but less than or equal to 4,000
C) More than 4,000 but less than or equal to 6,000
D) More than 6,000 but less than or equal to 8,000

Question

Quizplus · Accepted Answer

The company is indifferent when the total costs of both options are equal. Setting the equations $7870 + 3.20x = 2460 + 4.50x$ and solving for $x$, we find $x = 4,154$. Thus, the volume is more than 4,000 but less than or equal to 6,000.

A Large Hotel and Casino in Las Vegas Is Currently