Part A (5 Marks)

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

Part B (15 Marks)

Mamas 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 companys estimated fixed costs are $114000.

Required: (Show all calculations)

a) What is Mamas Pizzas contribution margin ratio? (2 Marks)

b) Calculate Mamas Pizzas break-even point in units (pizzas). (2 Marks)

c) Calculate Mamas Pizzas break-even point in sales dollars. (2 Marks)

d) (i) What is Mamas Pizzas margin of safety ratio? (2 Marks)

(ii) How can managers of Mamas Pizza use this margin of safety ratio information to manage the profitability of the business? (4 Marks)

e) How many pizzas must the company sell to earn a target profit of $75000? (3 Marks) (Total 20 Marks)

PART A

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

PART B

a) Contribution margin ratio

b) Break-even-point in units

c) Break-even-point in sales dollars

d) (i) Margin of safety ratio

(ii)

e) How many pizzas must the company sell to earn a target profit of $75000?