Vince\'s Pizza delivers pizzas to dormitories and apartments near a major state

Question

Vince's Pizza delivers pizzas to dormitories and apartments near a major state university. The company's annual fixed costs are $48,000. The sales price averages $9, and it costs the firm $3 to make and deliver each pizza.

Required:

A. How many pizzas must Vince's sell to break even?

B. How many pizzas must the company sell to earn a target profit of $54,000?

C. If budgeted sales total 9,000 pizzas, how much is the company's safety margin in dollars?

D. Vince's assistant manager, an accounting major, has suggested that the firm should try to increase the contribution margin per pizza. Explain the meaning of "contribution margin" in layman's terms.

Explanation / Answer

A.

Break Even Units = Fixed Costs/Contribution Margin Per Unit = 48000/(9-3) = 8000 Pizzas to break even

B.

(Fixed Costs +target Net Income)/Contribution Margin Per Unit = 102000/6 = 17000 Pizzas

C.

Sales - Breakeven Sales = Margin of Safety Breakeven Sales = Fixed Costs/Contribution Margin Ratio= 48000/(6/9)

81000-72000 = 9000 dollars margin of safety

D.

The contribution margin is represented by the product revenue minus the product variable cost. If they want to increast the contribution margin then they need to either higher the price or lower the variable costs

Related Questions

Navigate

• Browse (All)
• Browse V
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.