columbia university Operations And Supply Chain Management Assignment Help - Lugano’s Pizza

Question - Lugano’s Pizza Parlor is considering the purchase of a large oven and related equipment for mixing
and baking ?ocrazy bread.?? The oven and equipment would cost $120,000 delivered and installed. It
would be usable for about 15 years, after which it would have a 10% scrap value. The following
additional information is available:
a. Mr. Lugano estimates that purchase of the oven and equipment would allow the pizza parlor to
bake and sell 72,000 loaves of crazy bread each year. The bread sells for $1.25 per loaf.
b. The cost of the ingredients in a loaf of bread is 40% of the selling price. Mr. Lugano estimates that
other costs each year associated with the bread would be the following: salaries, $18,000; utilities,
$9,000; and ...Read More insurance, $3,000.
c. The pizza parlor uses straight-line depreciation on all assets, deducting salvage value from original
cost.
Required:
(Ignore income taxes.)
1. Prepare a contribution format income statement showing the net operating income each year from
production and sale of the crazy bread.
2. Compute the simple rate of return for the new oven and equipment. If a simple rate of return above
12% is acceptable to Mr. Lugano, will he purchase the oven and equipment?
3. Compute the payback period on the oven and equipment. If Mr. Lugano purchases any equipment
with less than a six-year payback, will he purchase this equipment? ...Read Less

Solution Preview - No Solution Preview Available

Original Question Documents

N/A