Question

Tony’s is a Pizzeria located near a local university. The restaurant not only sells two types...

Tony’s is a Pizzeria located near a local university. The restaurant not only sells two types of pizza: Thin Crust and Deep Dish, but also sells Pasta.

Information relating to the three products for the next month follows:

Thin Crust

Deep Dish

Pasta

Expected sales (units)

1,000

400

200

Sales price

$15

$20

$12

Variable cost

$6

$8

$5

The company has monthly fixed costs of $10,000 and a tax rate of 20%.

Required:

  1. Compute the company’s expected profit (net income) for the upcoming fiscal period.
  2. Compute the company’s sales mix. (Note Solve the normal way
  3. Assuming a consistent sales mix, how many units of each product type must the company sell to break even?
  4. Assuming a consistent sales mix, if the company wishes to earn monthly net income of $25,000, how many units of each product type must be sold?
  5. Compute the margin of safety in both dollar and percentage terms.
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