Assignment 1
The General Store at State University is an auxiliary bookstore located near the dormitories that
sells academic supplies, toiletries, sweatshirts and T-shirts, magazines, packaged food items, and
canned soft drinks and fruit drinks. The manager of the store has noticed that several pizza
delivery services near campus make frequent deliveries. The manager is therefore considering
selling pizza at the store. She could buy premade frozen pizzas and heat them in an oven. The
cost of the oven and freezer would be $27,000. The frozen pizzas cost $3.75 each to buy from a
distributor and to prepare (including labor and a box). To be competitive with the local delivery
services, the manager believes she should sell the pizzas for $8.95 apiece. The manager needs to
write up a proposal for the university’s director of auxiliary services.
a.
Determine how many pizzas would have to be sold to break even.
($8.95-$3.75) p = 27000
$5.2p = 27000
P = 27000/5.2
p=5192.3
So the store needs to sell p=
5192.3
pizza to break even
b.
If The General Store sells 20 pizzas per day, how many days would it take to break even?
259.6 days
to break even selling 20 pizzas a day
c. The manager of the store anticipates that once the local pizza delivery services start losing
business, they will react by cutting prices. If after a month (30 days) the manager has to lower
the price of a pizza to $7.95 to keep demand at 20 pizzas per day, as she expects, what will the
new break-even point be, and how long will it take the store to break even?
Sold 30 x 20=600 pizzas
600 x 5.2=$3120 sold
27000-3120=23880
($7.95-3.75)p=23880
4.2p=23880
p=23880/4.2=5685.7
pizzas to sell to break even and 5685.7/20=284.3
more days to break even
