Question

Raleigh Pizza delivers pizzas to the dormitories and apartments near a major state university. The company’s annual fixed expenses are $58,000. The sales price of a pizza is $10, and it costs the company $2 to make and deliver each pizza. (In the following requirements, ignore income taxes.)

Required:

1.	Using the contribution-margin approach, compute the company’s break-even point in units (pizzas).

  Question: Break-Even Point___ (number of pizzas)

2.	What is the contribution-margin ratio? (Round your answer to 1 decimal place.)

Question: Contribution-margin Ratio:___

3.	Compute the break-even sales revenue. Use the contribution-margin ratio in your calculation.

Question: Break-Even point sales dollars:___

4.	How many pizzas must the company sell to earn a target net profit of $64,000? Use the equation method.

Question: Number of pizzas:___

Answer 1

		Sales Price	10.00
		Less: Variable Cost	2.00
		Contribution Margin	8.00
		Fixed Costs	58000
	1	BEP in Units:
		Fixed Costs	58000	A
		Contribution Margin	8.00	B
		Break Even Point	7250	A/B
	2	Sales Price	10.00	A
		Less: Variable Cost	2.00	B
		Contribution Margin	8.00
		Contribution Margin Ratio	80.00%	A/B*100
	3	BEP in Units:
		Fixed Costs	58000	A
		Contribution Margin Ratio	80.00%	B
		Break Even Point	72500	A/B
	4	Target Net Profit	64000
		Add: Fixed Costs	58000
		Total Contribution Margin Required	122000	A
		Contribution Margin	8.00	B
		No of Pizza to be Sold	15250	A/B