The cost of baking equipment is $5,000, and the equipment is expected to last for five years, after which the equipment has no re-sale value. The maximum daily output of the equipment is 500 pies.
• He rents a small factory. The rental per week is $100.

• Other fixed costs amount to $7,500 per annum that includes maintenance, electricity and office overheads.

• Michael will work full time in his new business, and therefore he has to give up his job at a bakery for which he gets $750 per week. He will draw the same amount of salary from the newnbusiness.
• Based on the market information, Michael believes the pie can bensold at $1.50 each and that he should be able to sell an average ofn8,000 pies every month.
• Material costs for the pie amount to $0.35 per pie.
• Other variable costs including gas, sauce and packing, are $0.15 per pie.
Required:
a. Calculate the contribution margin for the pie Calculate the annual breakeven units and dollars.
c. Calculate the profit (before tax) for the first year if Michael would be able to get if he manages to sell an average of 8,000nunits per month.
d. Michael expects to make $60,000 profit after tax (the tax rate isn35%) in the first year to finance his business expansion. Hownmany pies must he sell in a year to achieve the profit target?
e. Michael was asked to submit a quote for providing pies to a restaurant at a special price of $0.80 each. In return for the

special price, the restaurant will guarantee Michael an annual purchase of not less than 12,000 units. Advise Michael whether he should accept the order. Justify your reason.