Analyzing Changes in Price, Cost Structure, Degree of Operating Leverage
Refer to the information for Pizza Pizazz in E6-2.
Required:
1.Calculate Pizza Pizazz’s new break-even point under each of the following independent scenarios:
a.Sales price increases by $1.00 per pizza.
b.Fixed costs increase by $500.00 per month.
c.Variable costs decrease by $0.35 per pizza.
d.Sales price decreases by $0.50 per pizza.
2.Refer to the original information presented in E6-2. Assume that Pizza Pizazz sold 400 pizzas last month. Calculate the company’s degree of operating leverage.
3.Using the degree of operating leverage, calculate the impact on profit caused by a 10 percent increase in sales revenue.
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