Question

Expenses for a Pizza restaurant include raw material for pizza at $4.00 per slice, $103.00 as monthly rental and $23.00 monthly as insurance. Lost sale expense is considered to be $5.00 per unhappy customer. Leftover Pizza can be sold for $3. The restaurant is open 25 days in a month.Today the restaurant prepared 200.00 pizza slices and sells them for $11.00/slice. There was a party at a nearby office so the demand for pizza went up to 222.00 slices. What is the daily fixed costs expense?

Alexa owns a Coffee Shop. The following information is from her accountant: Expenses: Advertising $44.00 Coffee, cups, sweetener, flour, etc. $5.34 per cup of coffee and a muffin Monthly rental $197.00 What will her break even point be if she sets the price for coffee and a muffin at $9.34.

You run a school in Florida. Fixed monthly cost is $5,204.00 for rent and utilities, $6,133.00 is spent in salaries and $1,292.00 in insurance. Also every student adds up to $100.00 per month in stationary, food etc. You charge $665.00 per month from every student now.You are considering moving the school to another neighborhood where the rent and utilities will increase to $10,623.00, salaries to $6,416.00 and insurance to $2,001.00 per month. Variable cost per student will increase up to $170.00 per month. However you can charge $1,119.00 per student. At what point will you be indifferent between your current mode of operation and the new option?

Answer 1

1.)

Fixed costs:

a. monthly rental = $103

b. insurance = $23

Total fixed costs = $103 + $23 = $126

Total days = 25

daily fixed costs expense = Total fixed costs ÷ Total days

= $126 ÷ 25

= $5.04 per Day

2.)

sales price = $9.34

Variable cost = $5.34

Contribution margin per unit = $9.34 - $5.34

= $4

Total Fixed costs = $44 + $197 = $241

break-even point = Total Fixed costs ÷ Contribution margin per unit

= $241 ÷ $4

= 60.25 units or 60 (rounded)

3.)

During the point at which it will be indifferent about current mode of operation and the new option the oprtaing profit (loss) of the two options will be equal.

Lets take the number of units = X

By substituting it in the normal profit equation we get,

665X - 100X - (5204+6133+1292) = 1119X - 170X - (10623+6416+2001)

565X - 12629 = 949X - 19040

384X = 6411

X = 16.70

At the point of 16.70 units it will be indifferent about both option because the operating profit (loss) from both the options will be same.