Question

Sam's Pizza is considering a new store location. For accounting purposes, fixed operating costs for a store are $245,000 a year, and variable costs are 42 percent of sales. The average pizza sells for $12.50. Compute the annual break-even sales level in number of pizzas for this store location.

Answer 1

Answer:

33,793   pizzas

Explanation:

The annual break-even sales level for the number of pizzas sold in the location is computed using the break-even sales units formula  below:

break-even sales=fixed costs/contribution margin per pizza

fixed costs=$245,000

contribution margin per pizza=selling price-variable cost

selling price=$12.50

variable cost=selling price*42%

variable cost=$12.50*42%

variable cost=$5.25

contribution margin per pizza=$12.50-$5.25 =$7.25

break-even sales=$245,000/$7.25 = 33,793   pizzas