Question

# University Pizza delivers pizzas to the residential colleges and flats near a major university. The company’s annual fixed costs are $40,000. The sales price of a pizza is$10 and it costs the company $5 to make and deliver each pizza. Required; a) Using the contribution approach, calculate the company’s break-even point in units $pizzas$. b) Calculate the break-even point in sales dollars. c) How many pizzas must the company sell to earn a target profit of$65,000?

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## Answer to a math question University Pizza delivers pizzas to the residential colleges and flats near a major university. The company’s annual fixed costs are $40,000. The sales price of a pizza is$10 and it costs the company $5 to make and deliver each pizza. Required; a) Using the contribution approach, calculate the company’s break-even point in units $pizzas$. b) Calculate the break-even point in sales dollars. c) How many pizzas must the company sell to earn a target profit of$65,000?

Birdie
4.5
a)

\text{Break-even point in units} = \frac{\text{Fixed Costs}}{\text{Sales Price per Unit} - \text{Variable Cost per Unit}}

\text{Fixed Costs} = \$40,000 \text{Sales Price per Unit} = \$10

\text{Variable Cost per Unit} = \$5 \text{Break-even point in units} = \frac{\$40,000}{\$10 - \$5}

\text{Break-even point in units} = \frac{\$40,000}{\$5}

\text{Break-even point in units} = 8,000 \text{ pizzas}

b)

\text{Break-even point in sales dollars} = \text{Break-even point in units} \times \text{Sales Price per Unit}

\text{Break-even point in sales dollars} = 8,000 \text{ pizzas} \times \$10 \text{ per pizza} \text{Break-even point in sales dollars} = \$80,000

c)

\text{Total Sales Needed} = \frac{\text{Fixed Costs} + \text{Target Profit}}{\text{Sales Price per Unit} - \text{Variable Cost per Unit}}

\text{Fixed Costs} = \$40,000 \text{Target Profit} = \$65,000

\text{Sales Price per Unit} = \$10 \text{Variable Cost per Unit} = \$5

\text{Total Sales Needed} = \frac{\$40,000 + \$65,000}{\$10 - \$5}

\text{Total Sales Needed} = \frac{\$105,000}{\$5}

\text{Total Sales Needed} = 21,000 \text{ pizzas}

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