PDA

View Full Version : Beginning accounting -


needygirl
May 30, 2012, 11:54 AM
The management of Rocko's Pizzeria is considering a special promotion for the last two weeks of October, which is normally a relatively low-demand period. The special promotion would involve selling two medium pizzas for the price of one, plus 1 cent. The medium pizza normally sells for $12.99 and has variable expenses of $4.50. Expected sales volume without the special promotion is 600 medium pizzas per week.

Required:
(a)
Calculate the total contribution margin generated by the normal volume of medium pizzas in a week.



(b)
Calculate the total number of medium pizzas that would have to be sold during the 1-cent sale to generate the same amount of contribution margin that results from the normal volume.


I am having trouble figuring out part B of this question. Part A came to 5094. Any advice/answers for me?

ArcSine
May 30, 2012, 02:05 PM
Under the promotion deal, a pair of mediums will fetch $13 total, or $6.5 per on average. No reason to expect the unit variable costs to change, so each pizza will generate a unit contribution margin of ?

And so then, how many pizzas in total must be sold to garner total contribution margin of $5,094?

Or equivalently, each pair of mediums will have revenue of $13 and variable costs of $9. So how many pairs must be sold to generate total contribution margin of $5,094? (Then multiply the number of pairs by two to derive the number of individual pizzas.)