Question

Pizzas Prepared Total Operating Costs October 5,513 $40,232 6,067 40,544 November December 6,690 7,000 January February 42,897 44,564 30,549 2,586 March 3,000 34,536 April 3,492 May 3,718 June 4,010 36,216 36,291 37,373 37,655 38,423 39,099 July 4,366 August 4,735 September 4,806 Total 55,983 $458,379

X is under product, variable, fixed, and mixed costs. It is Selling with S or Administrative with A.

Each pizza sells for $10.

Determine: The contribution margin per pizza; The breakeven sales level (in number of pizzas; The sales level (in number of pizzas) that will generate a profit of $9,000 for next November.

Answer 1

First we need to calculate Contribution Margin per pizza which is a percentage of Selling price. The formula is

Contribution/Selling price*100 = Contribution margin (as a percentage%)

to calculate contribution all we need to do deduct all variable costs from the selling price,

Thus, Contribution = Selling Price - Variable costs.

Variable costs also include the variable element of mixed costs.

Refer to the table below for the solution.

Particuliars	Amt	Amt
Selling Price		10
Less: Variable costs
Dough	0.4
Toppings	0.25
Cheese	0.45
Tomatoes	0.3
Delivery	0.22
Energy	0.25
Car Expenses	0.15
Total Variable costs		2.02
Contribution per unit		7.98
Contribution Margin		79.80%

Next up we need to find Breakeven Sales. Breakeven point is the point in sales where there is no profit or loss. Essentially a point where Contribution=fixed costs. For this we will assume the sales volume to be 4000 units and accordingly calculate total fixed costs. Once we get this figure all we need to do is divide this total by Contribution per unit which we already found in our previous solution which will give us Sales units at breakeven point,

For mixed costs, their fixed element needs to be included here.

Check the solution below for better understanding

Particuliars	Amt
Fixed costs:
Energy	1500
Kitchen Personnel	3000
Car Expenses	2000
Facilities	10000
Advertising	4500
Total	21000
Contribution per unit	7.98
Breakeven Sales (units)	2632

Thus Breakeven Sales in units is 2632 units.

The next part includes achieving a target profit of $9000, when attempting such a question all you need to is add this target profit to your fixed costs and then use the same method we used for calculating breakeven sales.

Particuliars	Amt
Fixed costs:
Energy	1500
Kitchen Personnel	3000
Car Expenses	2000
Facilities	10000
Advertising	4500
Target Profit	9000
Total	30000
Contribution per unit	7.98
Target Sales (units)	3759

Thus if we sell 3759 units we will make a profit of $9000.