Question

Indicate whether each of the following costs would be classified as direct materials, direct labour, manufacturing overhead, or period cost. (1 Mark each)

Cost of grapes purchased by a winery
Depreciation on pizza ovens of a pizza restaurant
Salary of a plant manager in a computer production facility
Depreciation of computers used in a sales department
Wages of drill-press operators in a manufacturing plant

Mama’s Pizza is famous for making Margherita pizzas and delivers pizzas to the suburb on the lower North Shore of Sydney in New South Wales. The sales price of a pizza is $16. It is estimated that the company will incur a variable cost of $250000 to make and deliver 25000 pizzas. The company’s estimated fixed costs are $114000. Required: (Show all calculations) a) What is Mama’s Pizza’s contribution margin ratio? b) Calculate Mama’s Pizza’s break-even point in units (pizzas). c) Calculate Mama’s Pizza’s break-even point in sales dollars. d) (i) What is Mama’s Pizza’s margin of safety ratio? (ii) How can managers of Mama’s Pizza use this margin of safety ratio information to manage the profitability of the business? e) How many pizzas must the company sell to earn a target profit of $75000?

Answer 1

Part A

Wages of drill-press operators in a manufacturing plant -Direct Material

Depreciation on pizza ovens of a pizza restaurant- manufacturing overhead,

Salary of a plant manager in a computer production facility-manufacturing overhead,

Depreciation of computers used in a sales department -period cost

Wages of drill-press operators in a manufacturing plant-Direct Labor

Part B