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Problem: Vince's Pizza Vince's Pizza delivers pizzas to dormitories and apartments near a major state university. The company's annual fixed costs are P4,800,000. The sales
Problem: Vince's Pizza
Vince's Pizza delivers pizzas to dormitories and apartments near a major state university. The company's annual fixed costs are P4,800,000. The sales price averages P900, and it costs the company P300 to make and deliver each pizza.
- How many pizzas must Vince's sell to break even?
- How many pizzas must the company sell to earn a target net profit of P5,4000,000?
- If budgeted sales total 9,900 pizzas, how much is the company's safety margin?
- Vince's assistant manager, an accounting major, has suggested that the firm should try to increase the contribution margin per pizza. Explain the meaning of "contribution margin" in layman's terms.
Problem: Austin, Brown, Freeman
Below are income statements that apply to three companies: Austin Co., Brown Co., and Freeman Co.:
Austin Co. | Brown Co. | Freeman Co. | |
Sales | P100 | P100 | P100 |
Variable costs | (10) | (20) | (30) |
Contribution margin | P90 | P80 | P70 |
Fixed costs | (30) | (20) | (10) |
Profit before taxes | P60 | P60 | P60 |
- Within the relevant range, if sales go up by P1 for each firm, which firm will experience the greatest increase in profit?
- Within the relevant range, if sales go up by one unit for each firm, which firm will experience the greatest increase in net income?
- At sales of P100, which firm has the highest margin of safety?
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