Question

able to purchase a machine to process the dough more efficiently which will increase fixed costs by $500 each month. This will reduce variable costs by $.50 per pizza. What number of pizzas must be sold to maintain the monthly profit of $20,000.

Answer 1

Number of pizzas = 6,778 units

Step-by-step explanation:

The computation of the number of pizzas to be sold for maintaining the monthly profit is shown below:

= (Fixed expenses + target profit) ÷ (Contribution margin per unit)

where,

Fixed expenses = $10,000 + $500 = $10,500

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $10 - ($6 - $0.50)

= $4.50

Now placing these values to the above formula

So, the number of pizzas would equal to

= ($10,500 + $20,000) ÷ ($4.50)

= 6,778 units