Question

Suppose that Street Corner Pizzeria has two main revenue generating products, which are pizza and beverages. Pizza revenues are $200,000 with a VC of $110,000 and beverage revenues are $170,000 with a VC of $55,000. This pizzeria pays $140,000 as FC and wishes to make $60,000 profit from its operations. How much additional revenue must be generated by the management beyond its breakeven points to achieve a desired profit of $60,000?

$108,284

$360,946

$252,662

$122,344

Answer 1

Option ( A) $108,284 is correct.

Particulars	Pizza	Beverage	Total
Sales	$200000	$170000	$370000
Variable cost	110000	55000	165000
Contribution	90000	1150000	205000
Contribution margin=[C/S]	45%	67.65%	55.40%

Fixed cost= $140000

Desired profit = $60000.

Contribution margin= 55.40%

Breakeven point in dollars = Fixed cost/contribution margin.

= $140000/ 55.40% = $ 252708

Margin of safety= Profit/Contribution margin

= $60000/55.40% = $108284.

'Margin of safety is excess profit earned after fixed cost recovery'.

Hence, option (A) is correct.

-+--+

Answer is solved as per given question.

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