Question

You have been asked by Pat of Pat’s Pizza Place to help create several financial metrics for the business. Pat sells pizzas at an average price of $10.00 per pizza. Ingredients and packaging cost the business $4.00 per pizza. The labor cost to make a pizza has been estimated to be about $2.00 per pizza. Pat’s Pizza has fixed costs (building rent, utilities, insurance, advertising, equipment, payments, etc.) of $54,000 per year.   Pat has asked you to answer the following questions:

1. How many pizzas does Pat have to make and sell to cover all of the business costs (Breakeven Quantity)?

2. How much of Pat’s revenue per pizza is used to cover fixed costs (contribution margin)?

3. What is Pat’s Gross Revenue if the Pizza Place sells 16,000 pizzas?

4. What will the profit be if Pat sells 16,000 pizzas?

1. Pat wants you to create an Annual Budget for next year assuming a sales forecast of 15,000 pizzas at $10 per pizza. All other costs are the same as previously mentioned. Use the Group Exercise format: REVENUE – EXPENSES = OPERATING PROFIT. What is Pat’s budgeted Income (profit) for next year?

Annual Budget

PAT’S PIZZA PLACE

REVENUE

     

      Total Revenue                                                                                              $_______

EXPENSES

     

                                                                  Fixed             Variable                            Total

      Total Expense                                                                                             $_______

OPERATING PROFIT                                                                                     $_______

Answer 1