Question

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 deliv¬ery 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.b. If the General Store sells 20 pizzas per day, how many days would it take to break even?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?

Answer 1

Answer:

A) it will need to sale 5193 pizzas

B) selling 20 per day it will take 260 days

C) if price decrease by 1 dollar to 7.95 the new BEP will be 6,429 dollars

and will take 322 days to achieve break even

Explanation:

fixed cost: 27,000 oven

sales price 8.95

variable cost 3.75 frozen pizza:

contribution margin: 5.2

break even:

27,000 dollars / 5.2 dollar per pizza= 5.192,30

5,192 pizzas / 20 per day = 259.6 days

If sale price decrease by one dollar:

27,000 dollar / 4.2 contribution per pizza=  6.428,57

6,429 / 20 per day = 321.4

Answer 2

Answer:

A: 5,192 pizzas

B: 260 days

C: the break even point will be 6,429 dollars in 321 days.

Explanation:

Firstly:

Cost of the oven and freezer = $27,000

Cost of frozen pizzas = $3.75

Proposed sale price of pizza = $8.95

The actual sale price = proposed sale price - cost of the frozen pizza = $8.95 - $3.75

= $5.2 each

A. For the pizza to be sold to break even, we will divide the cost of oven and freezer by the actual saleprice.

Thus:

Break even= $27000 divide by $5.2 = $5,192.307.

B. If the General Store sells 20 pizzas per day, the number of days to break even will be given by:

- Dividing the break even price by the number of pizza per day.

5192.306 divide by 20 (equals) = 259.615 days approximately 260 days.

C. Since the price was reduced from $8.95 to $7.95 with a significant reduction in just a dollar, the actual sales price will be $7.95 minus $3.75 which is equal to $4.2.

Therefore the break even will be;

$27000 divide by $4.2 = $6428.571

Approximately $6,429.

And the number of days to break even will be; $6428.571 divide 20 pizzas = 321.421 days.

Approximately 321 days.