95. The Groovy Movie Chains has invested in Italian snack bars for their stores,

Question

95. The Groovy Movie Chains has invested in Italian snack bars for their stores, where individual pizzas are prepared and sold. The investment cost the company $45,000. The company expects a sales volume for the new product to be 12,000 pizzas a year. Variable materials, preparation, and marketing costs are expected to be $1.50 a unit and fixed costs are estimated at $15,000 a year. Based on a desired 12% ROI, what should Groovy Movies charge as the selling price per pizza? A. $4.50 B. $2.75 C. $3.20 D. $5.20

Explanation / Answer

Suppose selling price per pizza is $X

       Sales         = $12000X

  less  Variable Cost   =$18000               (12000*$1.5=$18000)

                     =$12000X - $18000

  Less  Fixed Cost     = $15000

                     =$12000X - $18000 - $15000

                     =$12000X -$33000

ROI =  NET REVENUE

         NET COST

12 % = $12000X - $33000

          $45000

0.12 =$12000X - $33000

         $45000

$5400 = $12000X -$33000

$5400 + $33000 = $12000X

$38400 = $12000X

X =  $38400

     $12000

X= $3.20

SELLING PRICE PER PIZZA = $3.20

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