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. There are two major sources of commercial-grade frozen pizza: Ma Ma's Products and the Chun-Yee Corporation. If they make the pizza themselves, a substantial amount of preparation equipment will be required, along with skilled personnel. Frozen pizza needs either a conventional oven (Ma Ma's) or a microwave (Chun-Yee). Financial data is as shown below (variable costs are estimated based on an average pizza purchase):
$\begin{array}{|l|c|c|}
\hline \text { Source } & \text { Fixed Cost/year } & \text { Variable Cost } \
\hline \text { Make in-house } & \$ 7,870 & \$ 3.20 \
\hline \text { Ma Ma's } & \$ 860 & \$ 5.60 \
\hline \text { Chun-Yee } & \$ 2,460 & \$ 4.50 \
\hline
\end{array}$
a.At what volume is either Ma Ma's or Chun-Yee acceptable?
b.At what volume is the company indifferent to either Chun-Yee or make in-house?

Question

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. There are two major sources of commercial-grade frozen pizza: Ma Ma's Products and the Chun-Yee Corporation. If they make the pizza themselves, a substantial amount of preparation equipment will be required, along with skilled personnel. Frozen pizza needs either a conventional oven (Ma Ma's) or a microwave (Chun-Yee). Financial data is as shown below (variable costs are estimated based on an average pizza purchase):
 $\begin{array}{|l|c|c|}
\hline \text { Source } & \text { Fixed Cost/year } & \text { Variable Cost } \
\hline \text { Make in-house } & \$ 7,870 & \$ 3.20 \
\hline \text { Ma Ma's } & \$ 860 & \$ 5.60 \
\hline \text { Chun-Yee } & \$ 2,460 & \$ 4.50 \
\hline
\end{array}$ 
a.At what volume is either Ma Ma's or Chun-Yee acceptable?
b.At what volume is the company indifferent to either Chun-Yee or make in-house?

Quizplus · Accepted Answer

The Answer of 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. There are two major sources of commercial-grade frozen pizza: Ma Ma's Products and the Chun-Yee Corporation. If they make the pizza themselves, a substantial amount of preparation equipment will be required, along with skilled personnel. Frozen pizza needs either a conventional oven (Ma Ma's) or a microwave (Chun-Yee). Financial data is as shown below (variable costs are estimated based on an average pizza purchase):
 $\begin{array}{|l|c|c|}
\hline \text { Source } & \text { Fixed Cost/year } & \text { Variable Cost } \
\hline \text { Make in-house } & \$ 7,870 & \$ 3.20 \
\hline \text { Ma Ma's } & \$ 860 & \$ 5.60 \
\hline \text { Chun-Yee } & \$ 2,460 & \$ 4.50 \
\hline
\end{array}$ 
a.At what volume is either Ma Ma's or Chun-Yee acceptable?
b.At what volume is the company indifferent to either Chun-Yee or make in-house?

A Large Hotel and Casino in Las Vegas Is Currently