a. How many pizzas must he sell each month to break even under these conditions? b. If he is confident that he can sell 80 pizza per month, how much must he charge for each pizza to break even?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1. Your best friend, Mario, makes the most awesome
pizza in town! He's decided to open a pizza shop
and needs some advice. He expects his pizzas to
cost about $4 to make and he plans to sell them for
$10 apiece. He's going to rent a small space for
cooking, which will cost him $200 per month. He
also plans to spend $60 per month on advertising.
Utilities for his space are expected to be $100 per
month.
a. How many pizzas must he sell each month to
break even under these conditions?
b. If he is confident that he can sell 80 pizza per
month, how much must he charge for each pizza
to break even?
2. a. Using the information in (1a), above, how man
pizzas must he sell to make 8% net income on his
sales revenue?
b. Using the information in (1b), above, how much
must he charge per pizza to make 8% net income
on his sales revenue?
3. a. Mario isn't comfortable with the current
numbers. He thinks he can
reduce his
costs to $3.60 per pizza.
a. If he does this and keeps his sales price at $10
per pizza, how many must he now sell to make a
net income of 8%?
b. Instead, if he were to maintain his quality
ingredients and reduce his advertising costs to $40
per month, how many pizzas must he sell to make
his desired net income of 8%?
4. Mario has decided to offer free delivery for his
pizzas. He has persuaded you to be his delivery
person. You will get $1.50 for every pizza you
deliver. He expects 75% of his sales to be delivery.
All other costs will remain constant. As a result of
the increased demand, he is sure he can sell 120
pizzas per month. If he still wants to achieve a net
income of 8% of his sales and pizza prices are the
same whether or not they are delivered, how much
must he charge per pizza?
Transcribed Image Text:1. Your best friend, Mario, makes the most awesome pizza in town! He's decided to open a pizza shop and needs some advice. He expects his pizzas to cost about $4 to make and he plans to sell them for $10 apiece. He's going to rent a small space for cooking, which will cost him $200 per month. He also plans to spend $60 per month on advertising. Utilities for his space are expected to be $100 per month. a. How many pizzas must he sell each month to break even under these conditions? b. If he is confident that he can sell 80 pizza per month, how much must he charge for each pizza to break even? 2. a. Using the information in (1a), above, how man pizzas must he sell to make 8% net income on his sales revenue? b. Using the information in (1b), above, how much must he charge per pizza to make 8% net income on his sales revenue? 3. a. Mario isn't comfortable with the current numbers. He thinks he can reduce his costs to $3.60 per pizza. a. If he does this and keeps his sales price at $10 per pizza, how many must he now sell to make a net income of 8%? b. Instead, if he were to maintain his quality ingredients and reduce his advertising costs to $40 per month, how many pizzas must he sell to make his desired net income of 8%? 4. Mario has decided to offer free delivery for his pizzas. He has persuaded you to be his delivery person. You will get $1.50 for every pizza you deliver. He expects 75% of his sales to be delivery. All other costs will remain constant. As a result of the increased demand, he is sure he can sell 120 pizzas per month. If he still wants to achieve a net income of 8% of his sales and pizza prices are the same whether or not they are delivered, how much must he charge per pizza?
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