Pats Pizzeria produces three types of deli style pizzas: Thin Crust, Deep Dish, and Stuffed Crust. Pats anticipated sales mix is $7$:$5$:$4$ Thin:Deep:Stuffed. Current sales are $1,500$ bundles per year.

Thin Crust

Deep Dish

Stuffed Crust

Unit Selling Price

$$13$

$$18$

$$15$

Unit Variable Cost

$$5$

$$9$

$$7$

Fixed costs are estimated at $$50,000,$ which include $$44,000$ for general overhead, such as rent, utilities, etc., and $$6,000$ for advertising. Pats tax rate is $25\%.$

Round all interim answers to $4$ decimal places. For all questions, supporting calculations MUST be included.

A$.$ Prepare a contribution margin income statement for the level of sales required to earn $$100,000$ of before tax profits. Show revenues and variable costs for each type of pizza in the contribution margin income statement, and calculate the total profit after tax.

B$.$ What is the operating leverage ratio when $1,500$ bundles are sold?

If sales increase by $15\%$ from this level, by what percentage should Pat expect profit before tax to increase? How much is this increase in dollars?

C$.$ What is Pats margin of safety, in units of each type of pizza, at the current level of sales?

D$.$ If Pat increases advertising costs by $150\%,$ sales of all types of pizzas are expected to increase by $12\%$ above the original sales levels. Assuming the sales mix will remain the same, should Pat increase her advertising expenditure? Why or why not?

E$.$ What is the minimum percentage sales would need to increase before Pat would consider the additional advertising? $($Hint$-$ how much additional sales revenue is needed to earn at least the same profit she had without advertising?$)$

$($Return to the original problem assumptions for parts F G$.$ Do not assume advertising has been increased.$)$

F$.$ How many bundles of pizza will Pat have to sell to earn after$-$tax profits equal to $15\%$ of revenue?

G$.$ In analyzing results at the end of the year, Pat discovered that, although she sold $24,000$ pizzas as planned, the actual sales mix was $6$ Thin Crust, $6$ Deep Dish, and $4$ Stuffed Crust pizzas. How did Pats actual profit differ from her projected profit? Explain why this happened.