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
4.5103 Answers
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}
Answers:
a)8,000 \text{ pizzas}
b)\$80,000
c)21,000 \text{ pizzas}
b)
c)
Answers:
a)
b)
c)
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